Th1.4: Disadvantages of Regulation

Question 1

What are the five disadvantages of regulation?

Answer 1

expensive
less efficient 
regulatory capture
pass on costs
reduce competition

Question 2

Expensive

Answer 2

laws may be expensive for government to monitor, providing opportunity cost

Question 3

Less efficient

Answer 3

government don’t take into account different costs of following the laws for different companies. compared with tradable pollution permits, regulation is less efficient method of reducing pollution

Question 4

Regulatory capture

Answer 4

government can suffer from regulatory capture

Question 5

Pass on costs

Answer 5

firms may pass on costs to the consumer in the form of higher prices

Question 6

Reduce competition

Answer 6

excessive regulation may reduce competition in a market and efficiency by increasing bureaucracy and reducing innovation

Question 7

Give an example of a regulation in place to correct market failure

Answer 7

smoking bans

Question 8

How does gov intervention in individual markets often have macroeconomic consequences?

Answer 8

impact government budget - either raise revenue or spend more money
policies push business prices up, reducing international competitiveness and LRAS