Regulation (L22)

Question 1

Regulation

Answer 1

Rule/law enacted by government must be followed by economic agents to encourage a change in behaviour.

Question 2

Command

Answer 2

Bans (public smoking ban)
Limits (age limits on alcohol)
Caps (carbon emissions caps)
Compulsory actions (health warning on cigarette packets)

Question 3

Control

Answer 3

Enforcement

Punishment (fines/jail sentences)

Question 4

Disadvantages of max prices

Answer 4

Shortage created (goods + services may be distributed on first-come first served basis / seller’s preference so unfair.
Black market may emerge
The costs of enforcement is an opportunity cost
Difficult to set price to right level (info gap)
Rental market- producer surplus falls, landlords have less money to invest & maintain property, long term decline in the quality of housing stock

Question 5

Disadvantages of emissions trading schemes

Answer 5

Information gaps (too many/ little permits) 
Producers might try to pass the added costs onto consumers (price inelastic goods) 
Price might be volatile, uncertainty for business
If permits are given away for free, doesn’t raise gov revenue
Costs of operating and monitoring scheme
Competitor firms in other regions, like China + US don’t have emissions trading schemes so better relative competitiveness

Question 6

How can too many permits being issued be a disadvantage of emissions trading schemes

Answer 6

Little/no incentive for firms to reduce pollution

Question 7

How can too few permits being issued be a disadvantage of emissions trading schemes?

Answer 7

Reduced international competitiveness (decline in X-M, employment and growth)

Question 8

Disadvantages of minimum prices

Answer 8

Excess supply created

Higher prices for consumers, lower consumer surplus

Question 9

How is excess supply a disadvantage of minimum prices

Answer 9

Some producers can’t sell goods, potential for losses

The resources could’ve been used more productively elsewhere