1.4.1 Regulation Flashcards
1
Q
define regulation
A
government laws and rules imposed on markets to influence the behaviour of consumers and producers
2
Q
what are the pros of regulation/legislation
A
- forces consumers or producers to comply with the laws laid down
- most firms/consumers act within the law
- can generate fine revenue for government
3
Q
why is it good that legislation forces consumers/producers to comply
A
- brings about the desired change in behaviour
- particularly useful if information gaps are leading to undesirable results
4
Q
why do most consumers/producers act within the law
A
- governments can enforce these rules through regulation
- they feel morally bound to comply and don’t wish to damage their reputation
5
Q
why can legislation generate revenue for the government and why is this good
A
- generated from the fines imposed when businesses/consumers do not follow rules
- revenue can be reinvested in the area being targeted
6
Q
what are the cons of regulation/legislation
A
- difficult to decide correct level of regulation
- opportunity cost arises
- can reduce international competitiveness
7
Q
why is it difficult to decide correct level of regulation and why is this bad
A
- shadow pricing is complex and subjective
- can lead to external cost being overvalued leading to too high a level of regulation and overcorrection of market failure
8
Q
why does an opportunity cost arise
A
- the government faces administrative costs in monitoring and enforcing the regulations
- this money could be spent elsewhere
9
Q
why does regulation reduce international competitiveness
A
- can increase business costs
- leading to increased prices
- reduces international competitiveness, reducing exports and impacting BoP
10
Q
what does the success of regulation depend on
A
- level of regulation imposed
- ability of government to monitor/enforce regulations
- may be superior methods available
- addictiveness of product (e.g hard drugs)
