limits to government intervention (L18)

Question 1

regulatory capture

Answer 1

regulatory agencies dominated by interests of industries they are charged with regulating. Instead of acting with public interest they act in ways that benefit the industry it’s supposed to be regulating

Question 2

causes of regulatory capture

Answer 2

bribery, familiarity, revolving door

Question 3

bribery

Answer 3

gov officials may be motivated by financial reward, firms benefit from weak oversight so they may bribe the official to approve for whatever they’re doing eg property development

Question 4

familiarity

Answer 4

regulators and employees become friendly with each other which can lead to bias ( willingness to go easy on those they’re regulating)

Question 5

revolving door

Answer 5

regulators often go to work for companies they previously regulated and are paid large salaries due to lenient treatment during regulation when they were in office (rewarding them)

Question 6

impacts of regulatory capture

Answer 6

quality
price
externalities
asymmetric information

Question 7

quality

Answer 7

if regulators don’t enforce minimum standards of service the quality of goods is likely to fall

Question 8

prices

Answer 8

prices may be higher, they’d be more generous when setting permitted price rises eg RPI+3% instead of RPI+2% which impacts poorer households (regressive effects)

Question 9

externalities

Answer 9

external costs are likely to be ignored, less likely to ensure standards eg food hygiene

Question 10

asymmetric information

Answer 10

competition policy relies on info, there’s a risk of it being hidden from regulators due to lack of resources to properly oversee firms

Question 11

animal spirit

Answer 11

represents the emotions of confidence, fear, hope and pessimism that can affect financial decision making