Regulation & Deregulation

Question 1

What four effects does deregulation have on the market?

Answer 1

1. It makes the market more contestable
2. It promotes efficiency and forces innovation
3. It stimulates competition (the consumer benefits!)
4. It lowers barriers to entry

Question 2

Briefly, what is deregulation?

Answer 2

The removal of government imposed regulations and restrictions.

Question 3

For what five reasons might we want to regulate a market?

Answer 3

1. To prevent market failure - to protect the consumer from the consequences of market failure
2. To protect operators if one monopolist is exploiting the market (especially if the monopolist is in the private sector, then we may want to regulate their pricing and quantity)
3. To regulate safety
4. To regulate pollution
5. Or even to provide more of a service which isn’t already being provided

Question 4

Why would we want to renationalise a firm?

Answer 4

To generate funds for the government.