Lesson 3.6.2

3.6.2 Impact and limits of government intervention Quiz: Pearson Edexcel Economics, Unit 3

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 3.6.2, Impact and limits of government intervention: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. What intervention directly prevents a monopoly from charging excessively high prices?

    • Market deregulation
    • Profit tax increases
    • Trade union action
    • Price capping

  2. Which regulatory policy directly limits a firm's maximum allowed rate of return?

    • Market deregulation
    • Quality standards
    • Profit regulation
    • Competitive tendering

  3. Why might strict price caps reduce a firm's dynamic efficiency?

    • Lower consumer demand
    • Higher entry barriers
    • Reduced investment funds
    • Increased productive efficiency

  4. What is a potential drawback for consumers when governments enforce strict quality standards?

    • Higher product prices
    • Increased dynamic efficiency
    • Lower product safety
    • Greater market contestability

  5. How does market deregulation typically affect consumer choice?

    • Prevents new entry
    • Increases consumer choice
    • Eliminates all choice
    • Reduces consumer choice

  6. What term describes a regulator operating in the industry's interest rather than the public's?

    • Asymmetric information
    • Principal-agent problem
    • Regulatory capture
    • Creative destruction

  7. Why does asymmetric information make setting accurate price caps difficult for regulators?

    • Profits are eliminated
    • Markets are contestable
    • Consumers lack information
    • Firms conceal costs

  8. What is a likely consequence if a regulator sets a price cap too low?

    • Firm exit
    • Higher price inflation
    • Excessive profit
    • Increased investment

  9. Which scenario demonstrates regulatory capture in a regulated industry?

    • Enforcing strict caps
    • Protecting consumer rights
    • Promoting new entry
    • Favouring firm interests

  10. Why can strict price capping lead to reduced long-term capital investment?

    • Lower profit margins
    • Increased market contestability
    • Greater dynamic efficiency
    • Higher market demand

  11. Enforcing higher performance targets for regulated firms often creates a trade-off between quality and what?

    • Regulatory capture
    • Allocative efficiency
    • Consumer prices
    • Market contestability

  12. Which factor directly limits a regulator's ability to evaluate a firm's true costs accurately?

    • Productive efficiency
    • X-inefficiency
    • Competitive tendering
    • Asymmetric information

  13. Why does marginal cost pricing in a natural monopoly require a government subsidy?

    • High supernormal profits
    • Increased market contestability
    • Price below AC
    • Price above AC

  14. Which type of government intervention directly reduces consumer choice by restricting market entry?

    • Production subsidies
    • Licensing restrictions
    • Market demergers
    • Maximum price caps

  15. Which term describes a net loss of economic welfare resulting from government intervention?

    • Moral hazard
    • Market failure
    • Regulatory capture
    • Government failure

  16. What limit on regulation occurs when firms hold more data on costs than regulators?

    • Asymmetric information
    • Moral hazard
    • Principal-agent problem
    • Regulatory capture

  17. If a price cap is set above a firm's actual marginal cost, what inefficiency results?

    • Dynamic inefficiency
    • Allocative inefficiency
    • Productive inefficiency
    • X-inefficiency

  18. How does strict price capping typically reduce a firm's dynamic efficiency?

    • Reduces investment funds
    • Eliminates fixed costs
    • Increases R&D spending
    • Lowers production costs

  19. Which limit of regulation occurs when a regulator operates in the interest of the firm?

    • Regulatory capture
    • Asymmetric information
    • Moral hazard
    • Government failure

  20. Which regulatory policy sets prices based on allowing a fixed return on capital?

    • Rate of return
    • Competitive tendering
    • RPI minus X
    • Performance targets

All Pearson Edexcel Economics quizzes