Lesson 3.6.1

3.6.1 Government intervention in business behaviour Quiz: Pearson Edexcel Economics A, Unit 3

20 questions

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Lesson 3.6.1, Government intervention in business behaviour: 20 multiple choice questions for the Pearson Edexcel Economics A (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. Government intervention to control mergers typically involves:

    • Banning all mergers in every market by law
    • Leaving control of mergers entirely to consumers alone
    • Competition authorities blocking or requiring remedies for mergers that would substantially lessen competition
    • Encouraging unlimited mergers with no checks in any sector

  2. Price regulation of a monopoly means:

    • A regulator sets the price at the level of maximum profit for the firm
    • A regulator sets minimum prices to raise the monopolist's profit
    • A regulator sets a maximum price, such as a price cap on a utility, to limit monopoly pricing
    • A regulator sets prices with no link to the firm's costs

  3. Profit regulation involves:

    • Banning profit-making firms from operating in the market
    • Requiring the firm to pay all its profit to the government as tax
    • Limiting the rate of return a monopolist can earn, to prevent excessive profit
    • Paying a subsidy on all of the firm's profit each year

  4. Quality standards and performance targets are used to:

    • Remove standards altogether for monopoly firms in the market
    • Set minimum service or quality levels that regulated firms must meet
    • Set maximum quality levels for all goods sold in the market
    • Ban all services from being provided by private firms

  5. Privatisation is best described as:

    • The transfer of private assets to the state for public use
    • The creation of a new public corporation to run an industry
    • A ban on private firms operating in a particular sector
    • The transfer of state-owned assets to private ownership

  6. Competitive tendering for government contracts means:

    • Government sets the prices of all contracts directly itself
    • Government abolishes all contracts for public services in the sector
    • Government awards contracts to one firm regardless of price or quality
    • Government awards contracts to the firm offering the best value through open bidding

  7. Deregulation involves:

    • Creating new legal monopolies in previously competitive markets
    • Removing rules and barriers that limit entry and competition
    • Adding new rules to restrict entry into a market
    • Transferring firms into public ownership to run them

  8. Nationalisation is the:

    • Banning of monopolies by an act of parliament
    • Regulation of private firms without any change of ownership
    • Transfer of private firms into public ownership, for example to protect employees or suppliers
    • Transfer of public firms into private ownership in the market

  9. A water company's prices are capped by a regulator using a formula. Which intervention is this?

    • Price regulation through a price cap
    • Nationalisation of the water company by the state
    • Quality standards applied to the company's services only
    • Deregulation of the water industry to allow more entry

  10. Which intervention most directly promotes contestability?

    • Creating new legal monopolies to protect the industry
    • Granting exclusive rights to incumbents in the market
    • Deregulation that lowers entry barriers
    • Raising licence fees for new entrants to the market

  11. A government support scheme for small businesses aims to:

    • Raise prices for consumers in the market
    • Enhance competition by supporting new and smaller firms
    • Create monopolies by giving firms exclusive rights
    • Reduce competition by favouring the largest firms in the market

  12. A government nationalises a firm to protect its employees. What is a likely cost?

    • Taxes fall automatically once the firm is nationalised
    • Unemployment falls to zero immediately in the sector
    • There is no cost at all, since the state owns the firm
    • Taxpayers may bear the financing costs, and lower efficiency may follow without competitive pressure

  13. Which is an example of restrictions on the monopsony power of firms?

    • A subsidy paid to monopsonist employers to keep wages low
    • A ban on all hiring by firms in the market
    • A minimum wage that stops employers paying below competitive wages
    • A maximum wage set by employers in the sector

  14. Why might a regulator set a price just above average cost?

    • To allow normal profit and some investment, while limiting monopoly profit
    • To force the firm out of the market by setting a low price
    • To maximise the monopolist's profit as much as possible
    • To eliminate all profit, including normal profit, for the firm

  15. Evaluate the use of price regulation.

    • It always improves efficiency without any cost to anyone
    • It is useless, because prices never matter to consumers
    • It removes all monopoly power automatically in every market
    • It can curb monopoly pricing, but information gaps and incentives for poor quality may limit its effectiveness

  16. Why might a competition authority impose remedies rather than block a merger?

    • To protect the profits of the monopolist firm
    • Remedies such as selling off part of the business can keep efficiency gains while limiting market power
    • Because remedies are illegal under UK competition law
    • Because mergers can never affect competition in any market

  17. A regulator caps a monopolist's price at £10, where MC is £4 and demand gives Q = 100 at £10. Without regulation, the price is £14 and Q = 60. What is the likely effect?

    • Output falls to zero because the cap makes production unprofitable
    • Profit rises above the unregulated level because of the cap
    • Consumers lose all welfare because the price is capped
    • Output rises towards the efficient level, raising consumer surplus, but the firm may earn lower profit

  18. Compare nationalisation and regulation. What is the strongest difference?

    • Regulation transfers ownership to the state in every case
    • Nationalisation is always cheaper for consumers than regulation
    • Nationalisation transfers ownership and control to the state, while regulation keeps private ownership under rules
    • The two policies are identical in their effects on ownership

  19. Why might privatisation fail to increase competition?

    • Privatisation always creates many competitors in the market
    • Privatisation has no effect on prices or service quality
    • Privatisation abolishes all monopoly power in the industry
    • Privatised firms may keep natural monopoly features, so market power can persist without rivals

  20. Which evaluation is strongest for competitive tendering?

    • It always raises prices for the government and the public
    • It can reduce costs and improve value, but contracts may be poorly specified and bidders may be few
    • It has no effect on value for money in any contract
    • It eliminates all monopoly power in the sector immediately

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