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ACCA Applied Skills · Financial Management · The economic environment for business

A government wants to reduce the risk that a dominant firm abuses its market power by charging excessively high prices. Which of the following measures is a direct example of competition policy?

Referring a proposed merger to a competition authority is a direct competition policy measure, because it tests whether the merger would create or strengthen dominance and harm consumers. Interest rate rises, infrastructure spending and R&D tax credits are macroeconomic or supply-side tools, not competition policy.

  1. AReferring a proposed merger to a competition authority for investigationCorrect
  2. BRaising the base interest rate to reduce inflation
  3. CIncreasing government spending on infrastructure
  4. DOffering tax credits for research and development

Explanation

Competition policy aims to maintain competitive markets, and reviewing mergers that may create or strengthen a dominant firm is a core tool. Interest rate changes are monetary policy, infrastructure spending is fiscal policy, and R&D tax credits are an incentive to innovation, not a measure aimed at controlling market power.

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