Policies - Regulation

Question 1

Diagram analysis

Answer 1

• regulation increased firms costs of production - cause supply to shift leftwards - market price rises P1 - P2 - quantity will also decrease Q1 - Q2 -aims to solve problem of over consumption/over production of good X -there should now be a more socially efficient level of production and consumption and the market failure is corrected an is more allocatively efficient. -this is turn should reduce the welfare loss to society.

Question 2

Advantages of regulation

Answer 2

-Raises firms costs of production. Less willing to supply. -specific limit on emissions, thereby keeping pollution at an acceptable level. -limits can be set on output, making it socially efficient -regulation can have a faster effect -widely used - reduce negative externalities.

Question 3

Regulation disadvantages

Answer 3

-backed by sanctions -investment and employment consequences -multinational corporations may move their production facilities out I the UK -global agreement may be required -setting output difficult/subjective -policing costs -firms may find ways around regulations -curse instrument and there can be unexpected consequences. - a black market could emerge -success depends on the elasticity of demand for the product.

Question 4

Define regulation

Answer 4

Setting rules and controls that restrict market freedom. Regulations can correct market failure.

Question 5

Subsidy Diagram

Answer 5