Micro Government Intervention in Markets

Question 1

What are the three ways a price cap is varied?

Answer 1

RPI = Prices rise at rates of inflation
RPI-X = Prices vary with RPI but nay inefficiencies will be deducted from the price
RPI-X+K = Prices vary with RPI and amount spent on capital pushes up the price (investment)

Question 2

Name 4 ways governments promote contestability and competition

Answer 2

Promotion of small businesses through subsidies

Deregulation - removes barriers to entry

Competitive tendering - allow private firms to bid for government monopolies and encourage competition

Privatisation - breaks up government monopolies and encourages competition

Question 3

Name 4 ways government intervene to deal with monopolies

Answer 3

Price Regulation
Profit Regulation
Quality Control`
Performance Targets

Question 4

3 ways government intervene to protect suppliers

Answer 4

Pass anti-monopsony laws
Independent Regulators
Encourage self-regulation

Question 5

3 ways government protect employees

Answer 5

Health/safety regulation
Trade Unions
Encourage self regulation

Question 6

Monopoly price regulation diagram

Answer 6

Question 7

Government intervention to improve contestability and competition

Answer 7

Question 8

What is the evaluation for intervention?

Answer 8

Asymetric information - government doesnt have enough info to get to efficient outcome

Regulatory capture - regulators start acting more in the interest of the firms after developing good relations than in the consumer interest