A Level Economics AQA Practice Exam

Which scenario is an example of deregulation?

1. Increased taxes on large corporations

2. Reduction of government controls on airline pricing

3. Government establishment of minimum wage laws

4. Implementation of stricter safety regulations

The correct answer is: Reduction of government controls on airline pricing

Deregulation refers to the process of removing government controls or restrictions in particular industries, allowing for more freedom in how companies operate. The scenario of reducing government controls on airline pricing exemplifies this concept, as it indicates a movement towards allowing market forces to dictate prices rather than government mandates. When a government deregulates an industry, it typically aims to increase competition, reduce prices for consumers, or foster innovation. In the context of the airline industry, deregulation may enable airlines to set their own prices based on supply and demand, potentially leading to more flexible pricing and greater consumer choice. In contrast, the other scenarios involve increased regulation or government intervention rather than deregulation, thereby making them inconsistent with the concept in question. For instance, higher taxes on large corporations represent increased financial regulation, minimum wage laws establish a government-enforced wage floor that influences labor markets, and stricter safety regulations impose additional compliance requirements on companies. Each of these cases indicates a tightening of regulatory frameworks, which is opposite to the spirit of deregulation.