Government Intervention: Railways Nationalisation

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Questions and Answers

Which of the following is the most direct example of government intervention aimed at controlling monopolies?

Promoting small businesses through subsidies and grants.
Setting maximum prices that a dominant firm can charge. (correct)
Deregulation of industries to encourage new entrants.
Nationalizing industries after they have been privately run.

What is the primary goal of government intervention through deregulation?

To reduce the compliance costs for businesses.
To increase the power of existing dominant firms.
To foster greater competition within the market. (correct)
To decrease market contestability.

When a government chooses to nationalize an industry, what is the most likely intended outcome?

To increase short-term profitability of the industry.
To ensure the industry operates in the public's best interest. (correct)
To reduce government spending and bureaucracy.
To decrease the industry's efficiency and innovation.

Which of the following most accurately describes ‘regulatory capture’?

When regulatory agencies advance the interests of the firms they are meant to regulate. (C) Signup and view all the answers

How does asymmetric information typically affect government regulation?

It can lead to ineffective or misdirected regulations because regulators lack complete information. (D) Signup and view all the answers

What is a key difference between profit regulation and price regulation when governments intervene in monopolies?

Profit regulation affects the incentives for cost control, while price regulation might reduce incentives to improve efficiency. (B) Signup and view all the answers

How might enhancing competition through the promotion of small businesses conflict with efforts to achieve economies of scale?

Smaller firms may lack the capital to invest in technology needed for economies of scale, increasing average costs. (C) Signup and view all the answers

Which of these is the most likely reason why a government would use competitive tendering for government contracts?

To achieve the lowest possible cost for publicly funded projects. (B) Signup and view all the answers

What is the key economic rationale behind government intervention to protect suppliers from monopsony power?

To maintain a diverse and competitive supply base, which can boost innovation and economic resilience. (A) Signup and view all the answers

If a government imposes quality standards on goods and services, what is a probable unintended consequence?

Higher costs of production, potentially leading to higher prices for consumers. (A) Signup and view all the answers

Based on Extract A, what is the main conclusion of the CMA report regarding the UK energy market?

Customers are significantly overpaying for their energy due to lack of competition. (B) Signup and view all the answers

Referring to Extract A, which action was taken to help consumers in the energy market?

Creating a database to facilitate easier switching between energy suppliers. (A) Signup and view all the answers

According to Extract B, what did the Chairman of the CMA suggest regarding the profits of energy retail companies?

The profits should be capped at a significantly lower percentage of total revenue. (A) Signup and view all the answers

Based on Extract B, what concern did Scottish Power raise regarding proposals to regulate profits?

It would reduce investment in the energy industry and undermine long-term energy provision. (B) Signup and view all the answers

What is vertical integration, as mentioned in Extract B, and how might it affect competition?

It means controlling multiple stages of the supply chain, potentially increasing efficiency but also harming competition. (B) Signup and view all the answers

If the government aims to implement 'performance targets' as an intervention method, what would be a potential challenge in ensuring their effectiveness?

They might be easily met without genuine improvements in the service or product quality. (C) Signup and view all the answers

How might privatization, as a form of government intervention, improve market outcomes compared to nationalization?

It introduces profit motives and efficiency incentives, encouraging innovation and cost reduction. (C) Signup and view all the answers

If a government shifts from setting explicit price controls on a monopolistic firm to regulating the firm's overall rate of return, what potential outcome could result?

The firm may become less efficient and less responsive to technological changes. (C) Signup and view all the answers

What is the most likely reason a government would intervene to mandate certain performance targets for essential services?

To ensure consistent availability and quality of service across the population. (A) Signup and view all the answers

How does the problem of asymmetric information limit the effectiveness of government intervention in markets?

It allows regulated entities to manipulate or withhold information, leading to poorly designed or ineffective policies. (B) Signup and view all the answers

Flashcards

Regulatory Capture

When agencies favor producers over consumers, leading to skewed policies.

Asymmetric Information

When one party has more information than another, distorting decisions.