AQA Economics UNIT 3 - Industrial Policy

Basic presentation for study notes on industrial policy imposed by governments - tailored to AQA spec. 

Please note that presentation may appear incomplete due to page references. These references always refer to diagrams you can find in copies of the AQA Economics A2/AS textbooks - I just couldn't be bothered to find the diagram for my own revision. 

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Key terms
Competition policy
· A policy that aims to make goods markets more
Sunk costs
· Costs incurred when entering a market that are
irrecoverable if the firm leaves the market (e.g money
spent on marketing)
Restrictive trading practice
· An activity undertaken by a firm on its own/in collusion
with other firms that restricts competition and is anti-
competitive…read more

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Background to Industrial Policy
Industrial policy is microeconomic policy
Industrial policy aims to make firms and industries
function more efficiently, competitively, and in
public/national interest
First implemented in 1930s - the time of the Great
1945-1979 interventionist industrial policy (keynes)
1979 onwards - free-market supply-side economics
replaces Keynesian times of 1930s…read more

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Competition Policy
Competition focusses on monopolies, mergers
and restrictive trading practices and thus it
· Monopoly policy
· Merger policy
· Restrictive trading practices policy…read more

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Monopoly Policy
Monopoly policy investigates pure/existing monoplies, but
also mergers that may create new ones and monopolistic
power in oligopoly markets
There are two types of monopoly identified by the govt:
Scale monopoly
· One firm has at least 25% of the market for the supply/acquisition of
Complex monopoly
· A number of firms that together have a 25% share and conduct their
affairs so as to restrict competition
A statutory monopoly (a monopoly defined by law) is a scale
and complex monopoly…read more

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Justification of monopoly policy
PERFECT COMPETITION states that consumer
sovereignty rules, meaning the consumer is king...
MONOPOLY however can lead to the
manipulation/exploitation of consumer welfare through
restriction of output/raising of prices = net welfare loss
If the size of the market is limited and economies of scale
are possible monopolies can produce at a lower AC
Monopoly may be more innovative than firms that are not
protected by barriers to entry = monopoly more
dynamically efficient…read more

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