LS17 : Competition, Protecting Suppliers & Workers

Question 1

what is an SME?

Answer 1

small and medium enterprise

Question 2

give an example of an SME.

Answer 2

local independent pizza takeaway

Question 3

what is a start up?

Answer 3

company initiated by an entrepreneur to develop scalable business model. intend to grow large beyond the solo founder

Question 4

give an example of a start up.

Answer 4

• uber
• ocado
• air bnb

Question 5

why do governments seek to support start-ups and SMEs?

Answer 5

improve the competitiveness of markets

Question 6

what benefits do small businesses and start-ups bring?

Answer 6

• create competition
• create jobs
• increased choice for consumers
• some are source of exports
• seed-bed for innovation
• may be more innovative, flexible and quick in responding to market changes

Question 7

what problems do start-ups and SMEs face?

Answer 7

• struggle to find credit
• lack business skills & expertise
• difficult to recruit competent staff

Question 8

what can the government do to support start-ups and SMEs?

Answer 8

• provide information on how to set up business
• deregulate make it easier to enter markets
• streamline process for setting up
• provide training for business skills
• educational reform to increase skills of workforce
• provide business mentoring services

Question 9

what is competitive tendering?

Answer 9

process in which private-sector firms compete to win contracts to perform tasks on behalf of the gov. gov chooses firm they believe will be best in cost and quality.

Question 10

why is competitive tendering used?

Answer 10

introduces profit motive leading to increased efficiency and quality. taxpayer benefits from improved / cheaper public services

Question 11

what are the benefits of competitive tendering?

Answer 11

if competitive market for gov contracts then private sector will be responsible for allocating more resources in economy. improves quality and choice, decreases prices. taxpayer therefore benefit

Question 12

what are the downsides of competitive tendering?

Answer 12

• if gov push for lower prices, compromises quality
• taxpayer often end up with poor value for money as outsourcers can negotiate well
• contracts put out tend to only have a few bidders so competition is limited

Question 13

what is privatisation?

Answer 13

when a firm or industry change from public sector to private sector

Question 14

why does privatisation supposedly increase efficiency?

Answer 14

putting economic activity to private sector introduces :
- profit motive
- competition
encourages firms to reduce costs and improve quality to increase profit. causes increase in efficiency

Question 15

which industries have been privatised in the UK?

Answer 15

rail
energy
water

Question 16

what are the disadvantages of privatisation?

Answer 16

• natural monopoly conditions are unlikely to result in improved conditions for consumers
• social costs and benefits are more likely to be ignored
• gov loses out on source of revenue
• public sector assets are often sold too cheaply
• infrastructure arguably better off under state as vital to national interest

Question 17

what are the advantages of privatisation?

Answer 17

• private companies have stronger incentive to cut costs, increase efficiency & raise productivity
• gov gains revenue from sale of assets
• if state monopoly replaced by several firms, increase in competition, lowers price & increase quality

Question 18

what is a private finance initiative (PFI)?

Answer 18

gov takes competitive bids and buys investment projects such as construction of a hospital. gov pays back costs of whole project over set period of time

Question 19

what are the advantages of PFI?

Answer 19

• private sector better achieve cost efficiencies
• extra funding can kick start more projects
• PFI firms pay tax in theory making project cheaper for gov
• private sector better for innovation, higher quality for delivery, lower maintenance costs

Question 20

what are the disadvantages of PFI?

Answer 20

• debt costs
• inflexibility and poor value for money
• risk with success
• admin costs are high (advisors, lawyers, bidding)
• gov becomes dependent on private sector

Question 21

what is deregulation?

Answer 21

removal of government regulations

Question 22

what is the aim of deregulation?

Answer 22

makes entry and exit to a market easier, raising contestability. increases number of firms, increases competition leading to greater efficiency and consumer satisfaction

Question 23

what are the advantages of deregulation?

Answer 23

• price
• quality
• innovation

Question 24

explain the price advantage of deregulation.

Answer 24

deregulation increases contestability. incumbent firms less inclined to profit maximise due to new entrants, so lower prices to stay competitive

Question 25

explain the quality advantage of deregulation.

Answer 25

increased contestability puts pressure to increase quality due to threat of new entrants

Question 26

explain the innovation advantage of deregulation.

Answer 26

deregulation makes it easier to enter market so start-ups more likely to be innovative and take risks

Question 27

what are the disadvantages of deregulation?

Answer 27

• market stability
• public safety

Question 28

explain the market stability disadvantage of deregulation.

Answer 28

can lead firms to take excessive risks and load up on debt, leading to financial market failure. (particularly in financial service market)

Question 29

explain the public safety disadvantage of deregulation.

Answer 29

deterioration in public safety. eg. loss of life in grenfell

Question 30

what steps can regulators take to protect suppliers?

Answer 30

• fines & jail sentences
• increase contestability
• minimum prices

Question 31

what steps can regulators take to protect workers?

Answer 31

• minimum wages
• legislation (health & safety, paid leave, pensions, break period)
• fines & jail sentences