regulation and market failure Flashcards
define regulation?
Rules/laws enacted by the government that must be followed by economic agents to encourage a change in behavior (non-market)
when will regulation play a part in solving market failure?
it can happen during an over production/under consumption or during an underproduction/overproduction.
what types of regulations could there be?
Bans- e.g public bans on cigarettes
limits- e.g Alcohol limit or time limit
caps- e.g amount of fishes can be taken out the sea at a time
compulsory- use of covid-19 vaccinations or implementing graphic images on cigarette packaging.
Innovative regulators- like paying extra when buying plastic products we can get the extra money buy recycling
why has to be there strong enforcement and regulation?
This is for regulation to take place the gov has to think about putting strong punishments like fines or checking firms.
if command and control is strong what does this mean
there will be an incentive to change behavior either the business will produce/consume more or less, this means they are able to achieve the socially optimum level. As a result there will be allocative efficiency and welfare gain.
if regulation is expensive what can this lead to-eval?
Regulation is costly since there’s administration costs especially with enforcement.
what about setting the right level of regulation?-eval
If Regulation is set too strict it can actually lead to unintended consequences like costs will increase rapidly and leading to reducing profits and a rise in unemployment) more incentive to smuggle into the black market
-if the gov finds about black market then more policing which will increase costs further
what about pollution caps-eval?
pollution caps can be unfair since some firms have been running for years and they heavily rely on fossil fuels whereas newer businesses in recent years are eco-friendlier -unequal.
if regulation is controlled how can this be considered a evaluation point?
if regulation is too controlled by the government it will restrict choice levels and liberty which means again the rise of black markets.
