Regulation into markets

Question 1

ADV

Answer 1

By using regulation the government could use laws to ban consumers from consuming a good.
- This has positive externalities in the form of higher skilled workforce
- By deregulating the public sector, firms can compete in a competitive market, which could also help improve economic efficiency

Question 2

DIS

Answer 2

• Fails to follow regulation could face heavy fines, which act as disincentive to break the rule
• It can raise the cost of firms, who might pass on the higher cost to consumers.
• risk of regulatory capture- regulators start acting in the interest of the company due to impartial information rather than in consumer interest.
• The problem with asymmetric information can make it hard to determine what level a price cap should be imposed at
• Without sufficient information, the government could make poor decisions and it could lead to a waste of scarce resources.