The Student Room Group
Competition - post a photo you've taken of nature >>
Competition - post a photo you've taken of nature >>
Competition - post a photo you've taken of nature >>

This discussion is now closed.

Check out other Related discussions

Edexcel Economics: Unit 3 Business Economics and Economic Efficiency (June 2014) EC03

The official thread for the Edexcel economics unit 3 exam in June 2014. Need help or wanna share revision tips/ notes? Please post below! :smile:

Spoiler

(edited 10 years ago)

Scroll to see replies

Reply 1
Avatar for AdzyN
AdzyN
6
Original post by Swaany
The official thread for the Edexcel economics unit 3 exam in June 2014. Need helps or wanna share revision tips/ notes? Please post below! :smile:


Hey mate :smile:
Glad to see you've made a thread for Unit 3 also :biggrin:
You could start off refreshing my memory on government intervention techniques through the use of RPI - X and RPI + K
Thanks:smile:
Reply 2
Avatar for Swaany
Swaany
OP
7
Well, the specification states that we need to be able to compare and evaluate the strengths and weaknesses of methods of regulation. In this case, I will be talking about price capping and the strengths and weaknesses for price capping.

What is regulation?

Regulation is the direct control by government of firms, and is used when market forces are inadequate to ensure that monopoly firms do not abuse their market dominance. The government acts as a 'surrogate' for competition by making firms cut prices, or take legal action If the regulation is not followed, the firm can be fined.


What is price capping?

Price capping is a form of regulation and is used to regulate price utilities e.g. water companies, train-operating companies in the UK.
It is the upper limit for the price increase that firms can add to prices and it takes into the account of level of RPI inflation.
Although price capping has been phased out as most utility markets have become more competitive.


RPI - X

'X' is the factor determined by the regulator, and it represents the efficiency gains that the regulator has determined can be achieved by the firm.
So for example, if inflation is 5%, and X is 3%, than an industry can raise their prices on average by only 2% per year.


RPI + K

'K' accounts for the additional capital spending that the firm has agreed with the regulator. For example, it is used by water regulators e.g. Ofwat to determine the price for each of the regional water companies in the water industry. K factor is different for each of the water companies e.g. Thames Water's K factor could be 2.5%, whereas Bristol Water's K factor could be 3%. The K factor depends on how much they need to spend to maintain and improve water quality of service. The same concept applies for train-operating companies.


Advantages of price capping:

- Firms can keep the profits it makes through bringing about greater efficiency gains.

- Because the 'X' or 'K' factor is usually in place for a period of time, say 5 years, firms are able to plan ahead and know that they will not be penalised for making further efficiency gains.

- Price capping is also an appropriate way of preventing monopolies making excessive profits at the expense of consumers.

- Firms have more of an incentive to achieve other motives for the firm.

- Cuts in the real price levels are good for household and industrial consumers (leading to an increase in consumer surplus and higher real living standards in the long run).


Disadvantages of price capping:

- If the regulator underestimates the efficiency gains a firm can be expected to make, then firms can produce what appear to be excessive profits, although often these profits are used to invest in areas outside the regulator's remit and therefore generate even greater profits in the future.

- Setting different price capping regimes for each industry distorts the price mechanism.

- Price caps have lead to a large number of job losses in the utility industries.

- There have also been suggestions that the regulator and the regulated industry have built up a close relationship, resulting in the regulator being less strict on the firms under its control - this type of close relationship is called 'regulatory capture'.
Why is this a disadvantage? Well, because if there are less strict controls, the firm could potentially increase their prices (exploiting consumers) and make excessive profits in the long run. Is this an act of government failure?
(edited 10 years ago)
Reply 3
Avatar for AdzyN
AdzyN
6
Another advantage from the top of my head would be that firms have more incentive to achieve other motives for the firm.
Thanks for the info! Would've repped you, but I can't seem to find the option on my phone!


Posted from TSR Mobile
Reply 4
Avatar for Swaany
Swaany
OP
7
Original post by AdzyN
Another advantage from the top of my head would be that firms have more incentive to achieve other motives for the firm.
Thanks for the info! Would've repped you, but I can't seem to find the option on my phone!


Posted from TSR Mobile


I added more stuff onto that post but it seems some of it has gone? Gonna have to edit it again. Thank you for your response :smile:
Reply 5
Avatar for AdzyN
AdzyN
6
No problem mate lol. Let's keep this thread alive, even if it's just the two of us haha :biggrin:


Posted from TSR Mobile
Reply 6
Avatar for Swaany
Swaany
OP
7
Original post by AdzyN
No problem mate lol. Let's keep this thread alive, even if it's just the two of us haha :biggrin:


Posted from TSR Mobile


Haha, there you go.. I've added again the other advantages (as well as your point :wink:) and the disadvantages. Yeahh, defo haha :smile:

So are you taking all of the economics exam?
Reply 7
Avatar for AdzyN
AdzyN
6
Original post by Swaany
Haha, there you go.. I've added again the other advantages (as well as your point :wink:) and the disadvantages. Yeahh, defo haha :smile:

So are you taking all of the economics exam?


Yup just hoping to improve my grade haha.


Posted from TSR Mobile
Reply 8
Avatar for aminkaram
aminkaram
I find it kind of odd that i'm the only person in my class who thinks this paper is much easier than Unit 4. What does everyone else think? I think with Unit 3 it's just a question of learning everything particularly regulation. But with unit 4 you have to be able to think on the spot to an extent and incporporate ideas from other units, so I find that one harder to prepare for.
Reply 9
Avatar for aminkaram
aminkaram
Has anyone here looked at the old Unit 4 papers? I was wondering if anyone knows which part of the old syllabus is different to the one we are doing. because I'll soon be using those papers for revision.
Reply 10
Avatar for Swaany
Swaany
OP
7
Original post by aminkaram
Has anyone here looked at the old Unit 4 papers? I was wondering if anyone knows which part of the old syllabus is different to the one we are doing. because I'll soon be using those papers for revision.


I'm not sure where you're gonna get the old syllabus past papers. It's best you just start from the year 2009 when the 'new' syllabus started, you can find them from the Edexcel website
I don't like unit 3, I find it a bit boring.

Unit 4 on the other hand... :love:
Reply 12
Avatar for Swaany
Swaany
OP
7
Original post by aminkaram
I find it kind of odd that i'm the only person in my class who thinks this paper is much easier than Unit 4. What does everyone else think? I think with Unit 3 it's just a question of learning everything particularly regulation. But with unit 4 you have to be able to think on the spot to an extent and incporporate ideas from other units, so I find that one harder to prepare for.


I definitely agree!
I already have all of the old syllabus papers. My teacher gave them to us. I'm sure you can find them online as well. Thing is from 2010 to 2013 there's only 6 papers to work through. So personally I'll definitely be using the old papers as well.
Reply 14
Avatar for Swaany
Swaany
OP
7
Original post by aminkaram
I already have all of the old syllabus papers. My teacher gave them to us. I'm sure you can find them online as well. Thing is from 2010 to 2013 there's only 6 papers to work through. So personally I'll definitely be using the old papers as well.


Well you do that then.
Could someone give me some tips in answering a question about game theory. The structure, knowledge and evaluation points would be great


Posted from TSR Mobile
can some one explain me about the efficiency of all the market structures..??? PLEASE
hello, why is no one replying,...is it a dead thread?
hi does anyone know like the basic evaluation points for unit 3?

thank you
Original post by Edward Cullen
can some one explain me about the efficiency of all the market structures..??? PLEASE

No one's going to teach you. Research it yourself, there's plenty of resources online.

Related discussions

Latest

Trending

Trending

Articles for you