BTF ICAEW EXAM QUESTIONS AND ANSWERS
Why are businesses regulated? - Answers- to address market failure and externalities (external costs and benefits)
- to protect the public interest
Outcomes of regulation - Answers- address market failures
- increase or reduce social standing
- collective...
BTF ICAEW EXAM QUESTIONS AND
ANSWERS
Why are businesses regulated? - Answers✓✓- to address market failure and externalities
(external costs and benefits)
- to protect the public interest
Outcomes of regulation - Answers✓✓- address market failures
- increase or reduce social standing
- collective desires
- enhance opportunities
- deal with irreversibility
What is irreversibility? - Answers✓✓current activities will result in outcomes from which future
generations may not recover at all
What is regulation? - Answers✓✓a rule created by the government or another body which
interprets a statute, a form of secondary or delegated legislation
What is market imperfection? - Answers✓✓where monopoly power is leading to inefficiency,
government will put controls on prices or profits
What are externalities? - Answers✓✓dealing with the problem of external costs and benefits via
some form of regulation< e.g. controls on emissions of pollutants
What is asymmetric information? - Answers✓✓Where consumers and producers have unequal
access to information about a good or service in the market.
What is equity? - Answers✓✓the fair distribution of economic benefits
What does regulation do? - Answers✓✓- implements a primary piece of legislation appropriately
- takes account of particular circumstances or factors emerging during a primary piece of
legislation
What is the porter hypothesis? - Answers✓✓the innovation effect, makes processes and products
more efficient, cost savings are achieved
What is regulatory compliance? - Answers✓✓parts of a business that ensure people are aware of
and taking steps to comply with relevant laws and regulations
When does a dominant position arise? - Answers✓✓where one business is able to behave
independently of competitive pressures
Who regulates competition? - Answers✓✓The Competition and Markets Authority (CMA)
What is a cartel? - Answers✓✓An agreement between businesses not to compete with each other
(collude on prices, discounts, production etc, a party to an anti-competitive agreement)
The closer a market gets to perfect competition: - Answers✓✓the more efficient the allocation of
resources
What is wrong with monopolies? - Answers✓✓they are not in the public interest as they do not
allocate resources efficiently
How do the government seek to diminish monopolies? - Answers✓✓by fragmenting an industry
via legislation, so that market share is not concentrated in the hands of one or two producers,
also stringent testing and government approval before products marketed
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