Government Intervention

1 Government intervention in product markets

a) The case for government intervention.

b) Measures to control monopolies and mergers:

• price regulation

• profit regulation

• quality standards

• performance targets

• referral to regulatory authorities

• legislation to control mergers and takeovers.

c) Measures to promote competition and contestability:

• tax incentives and grants to promote small businesses and FDI

• deregulation • privatisation

• competitive tendering for public sector contracts • trade liberalisation.

d) Measures to protect suppliers and employees:

• local sourcing of raw materials and components

• employment legislation to protect workers from exploitation

• barriers to entry of foreign firms

• restrictions on the monopsony power of firms

• nationalisation.

e) The impact of each measure on:

• price • profit • efficiency • quality • choice.

f) Limits to government intervention:

• regulatory capture

• asymmetric information/information gaps • inadequate resources

• lack of regulatory power.

 

2 Government intervention in labour markets

a) The case for government intervention.

b) Types of government intervention in labour markets and their effects:

• maximum wage controls

• minimum wage controls

• direct taxes e.g. national insurance contributions; corporation tax

• measures to reduce geographical and occupational immobility of labour

• measures to reduce discrimination and exploitation