Lecture 7 - Government Regulation And Business Flashcards
What is government regulation?
Refers to use of legal authority by a government to control or influence business practices. Designed to ensure businesses operate within a legal framework that promotes fair competition, protects consumers, and addresses market failures.
What do the Food and Drug Administration (FDA) do?
Ensure that pharmaceutical companies meet safety standards before releasing products to the
market.
Why is regulation essential?
Protects the public interest, maintain the integrity of markets, and prevent abuses such as monopolies, fraud, or environmental degradation.
- Protects consumers from unsafe products and services.
- Ensures fair competition and prevents large corporations from
monopolising markets.
- Addresses market failures where the market alone does not provide
socially optimal outcomes (e.g environmental protection).
Types of government regulation
- Economic regulation 1/3
Price Controls:
- Government regulation of prices in industries that are essential to public welfare, such as utilities, healthcare, and transportation.
- Rent control laws in cities like New York prevent landlords from raising rents excessively in high-demand areas.
Types of government regulation
- Economic regulation 2/3
Market Entry and Exit:
- Certain industries require licensing and permits to operate, ensuring businesses meet minimum standards before entering the market.
- Pharmaceutical companies must receive approval from the FDA before introducing new drugs to market.
Types of government regulation
- Economic regulation 3/3
Antitrust Laws:
- Regulations that promote competition by preventing
monopolies and collusion among businesses.
The breakup of Standard Oil in 1911 due to its monopolistic practices under the Sherman Antitrust Act.
Types of government regulation
- Social regulation
Environmental Regulations:
- Designed to protect environment by limiting harmful business practices
like emissions, waste disposal, and resource extraction.
- Paris Agreement encourages countries to set regulations that
limit carbon emissions, impacting industries like oil and gas.
Types of government regulation
- Health and Safety regulation
- Ensures businesses provide safe products and maintain healthy
working conditions. - OSHA (Occupational Safety and Health Administration) regulations
require businesses to adhere to workplace safety standards, preventing accidents and health risks.
Types of government regulation
- Labour regulation
Protect workers’ rights by regulating wages, working hours, and working conditions.
The Fair Labor Standards Act sets national minimum wage and overtime pay requirements.
Types of government regulation
- Administrative regulation 1/2
Regulatory Agencies:
- Specialised agencies like the Securities and Exchange Commission, Environmental Protection Agency, and Federal Trade Commission oversee the enforcement of regulations in various sectors.
- The SEC ensures companies adhere to transparent financial reporting
practices.
Types of government regulation
- Administrative regulation 2/2
Compliance and Reporting:
- Businesses are required to comply with regulations and often must submit audits, inspections, and disclosures to regulatory bodies.
- Publicly traded companies must submit regular financial reports to the SEC to ensure transparency and accountability.
Issues in government regulation
Regulation in the Digital Age:
- Rise of digital platforms presents challenges in regulating data privacy,
cybersecurity, and online commerce.
- The General Data Protection Regulation in EU enforces strict data protection standards, influencing how companies handle
consumer data.
Deregulation trends
Recent years have seen a push for deregulation (the reduction or elimination of government power in an industry) in industries like
energy, finance, and telecommunications, with the aim of reducing barriers for businesses.
- Proponents argue deregulation spurs economic growth and innovation.
- Opponents warn it can lead to reduced consumer protections and
increased market volatility.
