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Government Intervention (Unit 3) — Exam Questions & Model Answers

Section 3.3.5 — worked exam questions with mark schemes, model answers and examiner commentary.

Economics · WEC13 · Unit 3 · 3.3.5

2 written questions · 12 marks

Time estimates come from one constant per paper — Economics Unit 3 is 2 hours · 80 marks — not from a per-question guess.

This page examines 0 of 33 requirements in 3.3.5 Government Intervention0.0%

Counted over the 2 written questions on this page and nothing else — not the whole question bank, and not the revision notes, which are measured separately and are much better covered. 2 of them carry no spec tag yet, so this number is a floor, not an estimate.

33 requirements in 3.3.5 that no question on this page examines
  • ECON-3.3.5-1a The case for government intervention.
  • ECON-3.3.5-1b-1 price regulation
  • ECON-3.3.5-1b-2 profit regulation
  • ECON-3.3.5-1b-3 quality standards
  • ECON-3.3.5-1b-4 performance targets
  • ECON-3.3.5-1b-5 referral to regulatory authorities
  • ECON-3.3.5-1b-6 legislation to control mergers and takeovers.
  • ECON-3.3.5-1c-1 tax incentives and grants to promote small businesses and FDI
  • ECON-3.3.5-1c-2 deregulation
  • ECON-3.3.5-1c-3 privatisation
  • ECON-3.3.5-1c-4 competitive tendering for public sector contracts
  • ECON-3.3.5-1c-5 trade liberalisation.
  • ECON-3.3.5-1d-1 local sourcing of raw materials and components
  • ECON-3.3.5-1d-2 employment legislation to protect workers from
  • ECON-3.3.5-1d-3 exploitation
  • ECON-3.3.5-1d-4 barriers to entry of foreign firms
  • ECON-3.3.5-1d-5 restrictions on the monopsony power of firms
  • ECON-3.3.5-1d-6 nationalisation.
  • ECON-3.3.5-1e-1 price
  • ECON-3.3.5-1e-2 profit
  • ECON-3.3.5-1e-3 efficiency
  • ECON-3.3.5-1e-4 quality
  • ECON-3.3.5-1e-5 choice.
  • ECON-3.3.5-1f-1 regulatory capture
  • ECON-3.3.5-1f-2 asymmetric information/information gaps
  • ECON-3.3.5-1f-3 inadequate resources
  • ECON-3.3.5-1f-4 lack of regulatory power.
  • ECON-3.3.5-2a The case for government intervention.
  • ECON-3.3.5-2b-1 maximum wage controls
  • ECON-3.3.5-2b-2 minimum wage controls
  • ECON-3.3.5-2b-3 direct taxes e.g. national insurance contributions; corporation tax
  • ECON-3.3.5-2b-4 measures to reduce geographical and occupational immobility of labour
  • ECON-3.3.5-2b-5 measures to reduce discrimination and exploitation.

Exam questions

Every question here carries a tariff that exists in IAL Economics. Open the mark scheme before the model answer and you will see what the examiner is paid to look for.

  1. Explain4 marksAO1 · AO26 min

    Explain what is meant by privatisation and give one potential benefit.

    Mark scheme
    1–2 marks
    Definition: transfer of ownership from public to private sector
    3–4 marks
    Application: benefit explained with example
    Model answer — 4 / 4
    What the marks in the margin meanKKnowledge/DefinitionAApplication
    Privatisation is the transfer of ownership of a business or industry from the public sector (government) to the private sector. K It means the firm is no longer state-owned but is instead owned by private shareholders who can buy and sell shares on the stock market. K

    A potential benefit is improved efficiency. Private firms are driven by the profit motive, giving them an incentive to cut costs and increase productivity. A For example, the privatisation of British Telecom (BT) in 1984 led to significant investment in network infrastructure and technological innovation that may not have occurred under slower-moving state ownership. A
    Examiner commentary
    Clear definition with correct emphasis on ownership transfer from public to private sector. The BT example provides concrete application. Linking the profit motive to efficiency is the key mechanism.

  2. Examine8 marksAO1 · AO2 · AO3 · AO412 min

    Examine how competition policy can be used to prevent the abuse of monopoly power.

    Mark scheme
    Examine (8)
    Appendix 6: Requires knowledge, understanding, application, analysis and evaluation. Requires an explanation which includes a chain of reasoning, and diagrams where appropriate. Focuses on depth rather than breadth. Any relevant data provided needs to be interpreted. There should be a brief assessment of the arguments/factors/evidence.
    Level 1 — 1–2 marks
    Isolated knowledge and understanding. No application to the context and no chain of reasoning.
    Level 2 — 3–4 marks
    Knowledge applied to the context. A chain of reasoning is begun but not carried through; any data given is described rather than interpreted.
    Level 3 — 5–6 marks
    A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.
    Level 4 — 7–8 marks
    A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.
    Indicative content
    Knowledge: definition of competition policy, role of CMA. Application: named example of competition policy action. Analysis: mechanisms (merger control, anti-cartel enforcement, price regulation) and their effects.
    Model answer — 5–6 / 8
    What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chain

    Para 1

    Competition policy refers to government laws and regulations designed to promote competition and prevent firms from abusing market power. K In the UK, the Competition and Markets Authority (CMA) is the primary enforcement body, with powers to investigate mergers, prohibit anti-competitive practices, and impose fines. K

    Para 2

    First, merger control prevents monopoly power from increasing through acquisition. The CMA can block or impose conditions on mergers that would substantially lessen competition. For example, the CMA initially blocked Microsoft's $69bn acquisition of Activision Blizzard in 2023, citing concerns about reduced competition in cloud gaming. A By preventing mergers that create dominant positions, competition policy preserves consumer choice and keeps prices competitive. An

    Para 3

    Second, anti-cartel enforcement targets illegal collusion between firms. Cartels fix prices, share markets, or rig bids — all of which harm consumers by eliminating competition. An Fines can be substantial — the EU fined a truck cartel €2.93bn for price-fixing. A Third, price regulation (e.g. RPI – X price caps) limits what natural monopolies can charge, ensuring consumers are not exploited while the firm retains incentives to reduce costs. An Each mechanism aims to increase allocative efficiency — ensuring prices reflect costs and output is closer to the social optimum. An
    Examiner commentary
    Three instruments — merger control, anti-cartel enforcement and price capping — each with a chain ending in allocative efficiency, and the Microsoft/Activision and truck cartel examples are current and well chosen. It sits at Level 3 because the instruments are described as working and never assessed. A Level 4 needs a brief assessment of their limits: investigations run for years, tacit collusion is very hard to prove, and blocking a merger can forgo real economies of scale that would have reached consumers as lower prices.
    Why this loses marks — a mid-band attempt at the same question

    Not a real script, and not written for this panel. It is 2 of 3 paragraphs of the model answer above, with “Para 3” removed. Nothing is rewritten. Open the model answer above and the difference is exactly the paragraphs named here.

    What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chain

    Para 1

    Competition policy refers to government laws and regulations designed to promote competition and prevent firms from abusing market power. K In the UK, the Competition and Markets Authority (CMA) is the primary enforcement body, with powers to investigate mergers, prohibit anti-competitive practices, and impose fines. K

    Para 2

    First, merger control prevents monopoly power from increasing through acquisition. The CMA can block or impose conditions on mergers that would substantially lessen competition. For example, the CMA initially blocked Microsoft's $69bn acquisition of Activision Blizzard in 2023, citing concerns about reduced competition in cloud gaming. A By preventing mergers that create dominant positions, competition policy preserves consumer choice and keeps prices competitive. An

    The band this attempt cannot reach

    Level 4 — 7–8 marks
    A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.

    Where it tops out instead

    Level 3 — 5–6 marks
    A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.

    No mark is put on this attempt. The full answer above is marked 5–6 / 8 by its own commentary; what a truncated version scores depends on the script, and inventing a number for it would be the kind of false precision this page exists to avoid.

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