Regulation and market failure Flashcards
1
Q
What is regulation ?
A
Law enacted by the GOVT that must be followed by economic agents to encourage a change in behavior
2
Q
What can they do using regulation ?
A
They can ban , limit , use caps , use compulsory action or enforcement + punishment to change behaviour
3
Q
How does regulation impact the market ?
A
Incentivised a change in behaviour
Solve issues in the free market ( externalities )
Gain allocative efficiency and also a welfare gain
4
Q
What are some counter points against the use of regulation to solve market failure ?
A
Cost of enforcing the rules is high
Strictness of rules will impact outcome
Regulation may cause firms to leave which increases unemployment and create black markets
