Th3.6: Impacts of Government Intervention Flashcards
What are governments able to do?
prevent monopolies charging excessive prices and aim to limit their profit
What do governments try to ensure?
that consumers pay fair prices, receive a good quality service and have a lot of choice through different methods of regulation and target setting
What might high regulation do?
force some firms out of the industry, which would reduce choice
How can they increase efficiency in a market?
by increasing competition and contestability
What does the government ensure by regulating prices?
ensure a business keep their costs low and so prevent X-inefficiency
How do markets try to increase dynamic efficiency?
by encouraging investment
What happens if the government regulates too strongly?
they can push costs up and lead to inefficiency
If the government runs a business, in theory…
they should reduce prices and increase quality as to aim to benefit consumers
A public sector business is likely to be…
allocative efficient, as they aim to maximise social welfare
Why might the government suffer from X-inefficiency?
as they have no incentive to be efficient due to the lack of competition - this may push up prices and reduce the quality of a good - private sector may have expertise and knowledge which the government might not have
Why are the government less likely to offer choice?
since there is only one company producing the good
Why does government intervention on the whole tend to be limited?
because of the political power of large firms and industries as a whole - they are able to lobby the government and set up pressure groups
