BTF Chapter 14: External Regulation of Business

The government has intervened to impose a limit on businesses' carbon emissions. This is an example of regulation designed to address market failure caused by

• asymmetric information

• equity

• market imperfection

• externalities

The government has passed regulations to change how car hire companies check whether hirers are licensed to drive in the UK. Speedy Hire plc is a major player in the UK car hire business. In anticipation of the new regulations the company implemented procedures which exceeded the requirements of the regulations. Speedy Hire plc's response to the new regulations was

• innovation

• entrenchment

• mere compliance

• full compliance

Ferndale plc is a multinational company. It has been charged with collusive behaviour in its UK operations. If found guilty, the company could, amongst other sanctions, receive a fine of

• up to 10% of annual worldwide revenues

• up to 10% of annual UK revenues

• up to 20% of annual worldwide revenues

• up to 20% of annual UK revenues

The government may place an additional tax on cigarettes to raise revenue for healthcare spending. The demand for cigarettes is price inelastic.

Which of the following statements is true?

• The tax on cigarettes may not raise as much additional revenue as anticipated because the demand for cigarettes is likely to become more elastic over time

• The tax will not raise much additional revenue in the short term or the long term because demand is price inelastic

• No additional tax revenue will be raised because sellers of cigarettes will lower their price by the amount of the tax so the price of cigarettes to consumers will not change

• This will raise additional revenue in the short term and the long term because there are no substitutes for cigarettes

Government intervention in a market economy can lead to an increase in economic welfare if

• it sets a good's maximum price above its equilibrium price

• the market mechanism has failed to allow for externalities

• it sets a good's minimum price above its equilibrium price

• the demand for inferior goods rises as incomes increase

The Fenno product is manufactured in the UK but is also imported into the UK from France. The UK government has recently decided to apply an import quota on imports of the product from France. The quota is below the current level of imports. This action will have the effect of:

• only French suppliers suffering a lower price

• both UK and French suppliers suffering a lower price

• only UK suppliers enjoying a higher price

• both UK and French suppliers enjoying a higher price

Anti-monopoly legislation is an example of government intervention to address market failure caused by

• market imperfection

• externality

• asymmetric information

• inequity

Competition legislation prohibits conduct that damages competition, including abuse by a business of its dominant position. Which three of the following are types of conduct that will be considered as an abuse if the business is in a dominant position?

• Imposing transfer pricing

• Limiting production markets or technical developments to the prejudice of consumers

• Applying different trading conditions to equivalent transactions, thereby placing certain parties at a competitive disadvantage

• Attaching unrelated supplementary conditions to contracts

• Providing public goods on behalf of the government

In which of the following circumstances would a cartel be most likely to operate?

• A market with a undifferentiated product and a large number of producers

• A market with differentiated products and few producers

• A market with a large number of producers and where demand for the product is inelastic

• A market with few producers and an undifferentiated product

The benefit of anti-monopoly enforcement is that

• it encourages firms to engage in research, which leads to new products being produced

• it deters firms from engaging in collusion, price-fixing and deceptive advertising

• it forces firms to produce efficiently

• the revenue from fines can be used for socially worthwhile causes