Topic 2B: Political Factors

Question 1

What are political factors with regards to government policy?

Answer 1

Government policy influences the economic environment, the framework of laws, industry structure and certain operational issues. Political instability is a cause of risk as it means long er term objectives cannot be achieved.

Question 2

What is the economic impact of the government in terms of capacity expansion? (3)

Answer 2

a.) Government policy can encourage firms to increase or cut their capacity. For example, the UK tax system offers capital allowance to encourage investment in equipment

b.) Also, a variety of incentives, funded by the EU and national governments, exist for locating capacity in a particular area

c.) Incentives are used to encourage investment by overseas firms

Question 3

What is the economic impact of government in terms of demand?

Answer 3

Explained by the fact that the government is a major customer. Government can also influence demand by legislation, tax refliefs or subsidies.

Question 4

What is the impact of the government in terms of emerging industries?

Answer 4

These can be promoted by the government or damaged by it.

Question 5

What is the economic impact of the government in terms of entry barriers?

Answer 5

Government policies can discourage firms from entering an industry, by restricting investment or competition, or by making it harder, by use of quotas and tarriffs for overseas firms to compete in the domestic market

Question 6

What is the economic impact of the government in terms of competition?

Answer 6

The governments purchasing decisions will have a strong influence on the strengths of one firm relative to another in the market (e.g. armaments)

Question 7

What is the economic impact of the government in terms of industries?

Answer 7

Can be promoted by the government or damaged by it

Question 8

What is the economic impact of the government in terms of entry barriers?

Answer 8

Government policy can discourage firms from entering the indsutry by restricting investment or compeition, by making it harder, though the use of quotas and tarrifs, for overaseas firms to compete in domestic market

Question 9

What is the economic impact of the government in terms of competition? (3 points)

Answer 9

a.) Government’s purchasing decisions will have a strong influence on the strength of one firm relative to another in the market.

b.) Regulations and controls in an industry will affect its growths and profits. (e.g. minimum product quality standards)

c.) As a suplier of infrastructure the government is also in a position to influence competition in an indsutrty

Question 10

Explain government regulation?

Answer 10

In some industries, the government regulates the adoption of new products, for example in the pharmaceuticals industry