Government intervention (theme 3)

Question 1

Competition policy

Answer 1

a set of measures designed too promote competition in markets and protect consumers in order to enhance efficiency of the markets.

Question 2

merger

Answer 2

where firms join together to form a single firm, potentially reducing competition in a market by increasing concentration

Question 3

nationalisation

Answer 3

where a privately owned firm or industry is taken into ownership by the government

Question 4

Privatisation

Answer 4

Where a publicly owned firm or industry is taken into ownership by private market

Question 5

Why is there often allocative inefficiency in a monopoly market structure

Answer 5

A profit maximising monopolist will produce less output at a higher price than a perfectly competitive market.

Question 6

What are cartels

Answer 6

Less formal agreements between firms, for example price fixing, agreements to restrict output.

Question 7

What are the aims of a competition policy
(6)

Answer 7

1. Prevent excessive pricing
2. Promote competition
3. Ensure quality, standards and choice for consumers.
4. Regulate natural monopolies/ effective privatisation of nat monopolies.
5. Promote technological innovation

Question 8

When will competition authorities intervene

Answer 8

1. Antitrust and cartel agreements
2. Investigate mergers
3. Liberalise concentrated markets
4. Monitor state aid

Question 9

What are the different types of monopoly regulation

Answer 9

1. price regulation
2. Quality control/performance targets.
3. Profit control
4. Windfall taxes on profits
5. Merger policy
6. Privatisation.
7. Deregulation
8. Reduce trade barriers

Question 10

What are evaluation points for monopoly regulation

Answer 10

• Level of information
• Costs vs benefits
• Regulatory capture
• Benefits of monopoly

Question 11

How does price regulation regulate monopoly market structure

Answer 11

Price cap aims to limit the price that monopolies can charge. Set below the profit maximising price for monopolies.