Arguments for Market Regulation Flashcards
What are negative externalities?
Unregulated markets fail to internalize external costs, leading to overproduction of harmful goods
Example: Pollution from industries
What is a market-based regulation aimed at correcting negative externalities?
Carbon taxes (Pigovian taxation) or cap-and-trade systems
Example: EU Emissions Trading Scheme
What historical event prompted the 1956 Clean Air Act in the UK?
The Great Smog of London (1952)
This event killed thousands due to unregulated coal burning
What contemporary example illustrates an effort to curb emissions?
China’s implementation of a carbon pricing system in 2021
China is the world’s largest polluter
What are critics’ concerns regarding China’s carbon pricing system?
Weak enforcement and firms evading strict compliance
What is regulatory capture?
When firms influence regulators to create favorable policies
This can be an unintended consequence of regulation
What is a potential risk of regulation addressing externalities?
Increased business costs leading to job losses
What are public goods?
Public goods are non-excludable and non-rivalrous
Why are public goods underprovided in a free market?
Firms lack profit incentives to supply them
How do governments ensure the provision of public goods?
Through taxation
What is an example of a public good in the UK?
The UK’s National Health Service (NHS)
What issue does the NHS address?
Market failure in healthcare provision
What problems have arisen from the underfunding of the NHS?
Long waiting times and declining service quality
What alternative approach to public goods provision is mentioned?
Germany’s social insurance model
What does Germany’s social insurance model combine?
Private provision with government-mandated coverage
What are some potential downsides of excessive state involvement in public goods provision?
Inefficiency, bureaucracy, and fiscal pressures
Fill in the blank: Public goods are _______ and _______.
non-excludable and non-rivalrous
True or False: Public goods can be provided profitably by private firms.
False
What fiscal pressure is mentioned regarding public goods in the UK?
Rising healthcare costs
What is the impact of market concentration?
Leads to price-gouging, reduced innovation, and consumer exploitation
Market concentration occurs when a small number of firms control a large share of the market.
What is the purpose of antitrust regulation?
Prevents firms from becoming too dominant
Antitrust laws are designed to promote competition and prevent monopolies.
What was the historical example of antitrust regulation in the US?
The 1890 Sherman Antitrust Act
This act was significant in breaking up monopolies like Standard Oil.
What was the outcome of the 2018 EU fine against Google?
Google was fined €4.3 billion for abusing its market dominance in mobile search
This action aimed to ensure fairer competition in the market.
What are potential downsides of excessive regulation?
Can stifle economies of scale, reduce incentives for innovation, and create regulatory uncertainty
Balancing regulation is crucial to foster a healthy business environment.