Theme 3.6 Flashcards
What is the main role of the Competition and Markets Authority (CMA) in the UK?
To promote competition and ensure efficient markets while protecting consumer interests.
What happens if a merger creates a firm with monopoly power?
It is likely to be prevented by the competition authorities.
Why do governments intervene to control monopolies?
To prevent the abuse of monopoly power and market failure.
What is a potential consequence of monopoly power?
Reduction in overall economic welfare.
What is RPI-X?
A form of price capping used to regulate prices in privatised industries.
How does RPI-X work?
If RPI is 5% and X is set at 2%, the firm can increase prices by 3%.
What does K represent in the water industry regarding RPI +/- K?
The amount of investment the firm needs to undertake.
What is one advantage of RPI-X?
It encourages firms to cut costs and improve efficiency.
What is a disadvantage of RPI-X?
It can limit profit potential, which may restrict investment.
What is the effect of high corporation tax on firms?
It might discourage firms from earning above a certain level of profit.
What role do regulators play in the quality of goods and services?
They ensure minimum quality standards are met.
What is the ‘Red Tape Challenge’?
A UK government initiative to simplify regulations for businesses, especially small ones.
What is the significance of Small and Medium Sized Enterprises (SMEs) in the market?
They create jobs, stimulate innovation, and promote competition.
What does ‘creative destruction’ refer to?
The process where new entrepreneurs challenge existing firms, leading to market evolution.
What is deregulation?
The act of reducing government regulations in an industry.
What is privatisation?
The transfer of assets from the public sector to the private sector.
What is one argument for privatisation?
It incentivizes firms to operate efficiently due to profit motives.
What happens in competitive tendering for government contracts?
The firm offering the lowest price and best quality wins the contract.
What is monopsony power?
Market power held by a single buyer, such as supermarkets negotiating prices with farmers.
What occurs during nationalisation?
Private sector assets are sold to the public sector.
What is a natural monopoly?
An industry where it is inefficient to have multiple providers, such as water supply.
What is the primary objective of nationalised industries?
To prioritize social welfare rather than profit maximization.
How can government intervention affect prices for utility services?
It can make services more affordable and encourage efficiency.
What is the impact of strict price caps on investment?
They could limit the amount of profit, thereby restricting investment.
