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Full revision notes for Edexcel Economics A Paper 2 Macroeconomics
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PEARSON (PEARSON)
Economics A
Unit 3 - Business behaviour and the labour market
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3.6.1 Government intervention
a) Government intervention to control mergers
Competition and Markets Authority (CMA)
Def: Aim to reduce monopoly power + promote competition + protect consumer
interest
Manages cartels, merges, support SMEs
Monopolies Competition Employees
Profit cap Promotion of small Restriction of
Price cap businesses monopsony power
Quality standard Deregulation Nationalization
Performance target Privatization
Breaking up monopoly
Preventing mergers
b) Government intervention to control monopolies:
Profit cap
Price cap
Quality standard
Performance target
price regulation
To prevent monopoly prices
However,
Reduce incentive to enter the industry becoz less profit
Dynamic inefficiency
Difficult to place a monetary value of price
, profit regulation
However,
Might increase VC to reduce its profit productively inefficient
Dynamic inefficient
Less firms would like to enter the market not increase comp (against the aim)
quality standards
Def: Laws imposed by the government or CMA to ensure firms meet the
minimum standards
performance targets
Def: A goal set by a the government/CMA for firms to achieve
If cannot achieve geh consequence is fine = fine act as a deterrent to firms as it
might reduce their profit + explain the role of CMA
c) Government intervention to promote competition and contestability:
Promotion of small businesses
Deregulation
Privatization
Breaking up monopoly
Preventing mergers
Promotion of small businesses (=supply side policy)
(Increase competition & keep big firms to lower their production costs)
+ regulations to make SME develop
e.g. ‘Help to grow scheme’
Support and discounts to help small and medium-sized UK businesses find, buy
and adopt digital technologies to improve productivity
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