GI- Regulations And Standards

Question 1

What are non market based policies

Answer 1

Direct state intervention in markets e.g. Legally enforced standards and regulations that restrict economic agent’s choices

Question 2

List the main types of non market based policies

Answer 2

• gov set regulations and standards enforced by law
• state provision of goods and services
• price controls to limit the highest or lowest price set in a market e.g. A minimum wage

Question 3

How do non market based polices work

Answer 3

Economic agents adjust their decision making to comply with state set standards and regulations or risk prosecution, fines or imprisonment

Question 4

What are standards

Answer 4

Gov standards set out minimum legal requirements for a given economic activity e.g. The level of co2 emissions above which a car fails its mot

Question 5

Explain regulation

Answer 5

Regulations are legally enforced rules set by government that restrict or ban specified activities

Question 6

Examples of regulations used to reduce market failure

Answer 6

• information failure corrected by requiring producers to label products with missing info
• economic activity generating -be externalities is banned
• legislation bans price fixing, limits Sunday opening for shops and sets a min wage

Question 7

What if economic agents ignore regulations

Answer 7

Regulations are legally enforced rules that override economic agents and own preferences

Question 8

Why is monitoring important

Answer 8

Monitoring helps ensure compliance ie consumers and firms observe regulations and meet standards

Question 9

When is regulation important

Answer 9

Regulation is particularly used for any economic activity where the consequences of associated market failure are highly damaging to society

Question 10

Lost the potential benefits of regulation. Laws and regulations can be passed quickly and are

Answer 10

• legally binding
• effective when the cost of the fine is greater than the benefits of ignoring a regulation
• regulation can be passed quickly and so have a rapid impact
• revenue from fines can be used to correct the cause of market failure or compensate those effected

Question 11

Can all regulations be enforced

Answer 11

A law must command the support of the general public. The prohibition of alcohol in the USA during the 1930s became unenforceable

Question 12

What are the drawbacks of regulations

Answer 12

• increase a firm’s cost management
• impose monitoring and enforcement costs
• restrict consumer and producer choice
• illegal black markets may emerge
• economic agents can bypass regulations if other nations do not also regulate to the same standard
• regulators must decide on the extent of regulation
• requires international coordination to prevent firms may reallocate overseas to avoid compliance

Question 13

Can regulation fail

Answer 13

State intervention through regulation can lead to government failure if the costs of regulation are high or imperfect information is used in setting regulations