Government Intervention and Large/Small Firms

Governments intervene in order to protect who? (3) The shareholders The companies The environment The media The workers The banks The consumers The opposition However, too much intervention will discourage what? (2) Enterprise development Dividend payouts Innovation Foreign Direct Investment (FDI) Employee training opportunities International reputation What will governments try and encourage? (1) Positive externalities Profit Business growth Reduction in employment opportunities Government policies to deal with externalities Match each government policy with its correct example: Taxation To charge firms that emit emissions, or consumers who buy certain products, more money Subsidies To incentivise firms to reduce external costs by changing their working practices Fines Financially penalising those firms or consumers that damage the environment, abuse the consumer or limit competition Regulation Creating laws that restrict damaging business behaviours Pollution permits A document that gives a business the right to discharge a certain quantity of a polluting material into the environment Government regulation of competition Sort the following actions into their most appropriate group: Promoting competition (3) Encourage the growth of small firms Lower any barriers to entry Introduce anti-competitive legislation Limiting monopoly power (2) Stopping powerful firms from exploiting customers Set up a 'watchdog' to monitor the behaviour of dominant firms Protecting consumer interests (3) Ensure any products sold are fit for purpose Prevent price fixing Prevent market sharing Controlling mergers and takeovers (2) Investigate acquisitions that give an unfair advantage Block or add conditions to firms that want to grow inorganically In which areas would governments intervene to protect consumers? (8) Shareholder dividends Product development Prices Information about products Trading and age restrictions Customer payment methods Distribution channels Organisational structure Consumer rights Promotion of products Product quality Trade credit terms Number of employees being laid off Payment systems used at the firm Product safety Product colour The Minimum Wage A minimum wage is the minimum amount per hour which most workers are legally entitled to be paid. In some countries, governments appoint a body to review minimum wage levels every year and enforce compliance. Employers face a penalty if they pay wages that are lower than the national minimum wage. Also workers will be entitled to have any money owed to them repaid at current ratesThe general reason for the introduction of a national minimum wage was in order to raise the incomes of low paid workers. However other specific reasons include:1) Minimum wages will benefit particularly disadvantaged workers e.g. women, ethnic minorities and low-income families, as they reduce inequality and increase fairness – In many countries the gap between rich and poor is rising and it is argued that minimum wages might help to close the gap.2) In some countries people on low incomes can also claim financial help from the government however if incomes are increased then low income workers will claim less and save the government money.3) Higher wages may serve to motivate workers, this will in turn boost productivity. Employers might also seek to increase productivity in order to justify the increase in pay. Alternatively they might seek to replace people with machines as they are more efficient. Both of these responses will lead to increases in productivity which will benefit the economy.Supply and demand analysis can be used to show the effects of a minimum wage on wages and employment in labour markets. If the government imposes a minimum wage, economic theory suggests that the minimum wage will have a negative effect on the level of employment, as firms choose to lay off workers or replace them, in order to pay for the increased labour costs. Therefore, in theory, a minimum wage will result in job losses.Some people, however, have argued that minimum wages do not reduce the level of employment in the economy and there is some evidence to support this view. E.g. since the introduction of the minimum wage in the UK in 1999, the number of people actually employed has risen. However, the UK economy was growing during this time and so there was increased demand for labour Tutor2U - Evaluating Government Intervention How can the size of a firm be measured? (4) Profit Turnover Dividend payments History Number of employees Capital employed Number of awards Business units Market share Why do governments want to increase the growth of small firms? To increase the tax take To increase market share To increase product range To increase competition In which sector would you be more likely to see small firms? Primary Secondary Tertiary Quarternary Large Firm - Pros and Cons Match each pro or con with its correct description Economies of scale lower average costs than smaller rivals Market domination they have a higher public profile = more recognised and trusted = can charge higher prices = higher profits Large-scale contracts big projects (especially from government) are awarded to big businesses as they have the resources to successfully complete them Too bureaucratic large organisations require lots of administration = waste of resources and slower decision making Coordination and control thousands of employees, billions of pounds, dozens of locations = hard to run! = higher management costs Poor motivation workers are more likely to become alienated and also feel that their contribution doesn’t matter as much. They might not mix and have personal contact Factors influencing the growth of firms 1) Government regulationGovernments do not want firms to dominate a market and will create laws to prevent this from happening.2) Access to financeBusinesses need money to build new factories, make acquisitions, develop new products etc. Firms that can persuade money lenders and investors to provide finance will be more likely to grow.3) Economies of scale How well a business can exploit economies of scale will determine how quickly, and to what extent, they can grow.4) The desire to spread riskRisk can be reduced by diversifying into new products or new markets. If one venture fails the success in the others will keep the firm going.5) The desire to take over competitorsA quick way of growing is to buy your competitors, this also helps to reduce the competition you face in the market Tutor2U - Why Small Firms Survive