Regulation

Question 1

What is regulation

Answer 1

Regulation refers to a law or rule enacted by the government firms need to follow which aims to change behaviour

Question 2

What sort of approach does regulation use

Answer 2

Regulation uses a command and control approach rather than a market based approach

Question 3

What is the command (examples)

Answer 3

• bans - bans on public smoking
• limits -> age limits and time limits
• caps -> emission caps
• compulsory actions -> graphic images on cigarette packachin

Question 4

What control

Answer 4

• punishments and enforcement

Question 5

What are some benefits of regulation

Answer 5

• if there is strong command and control -> this will incentivise firms to change their behaviour and produced less demerit goods which have regulation against them
• pushing quantity produced to the social optimum
• leads to allocative efficient and welfare gains

Question 6

What are some disadvantages of regulation

Answer 6

• a disadvantage of regulation is that the cost of administration and enforcement is expensive -> such as policing to make sure people are abiding by regulation
  -setting the right regulation is hard
• can lead to unintended consequences such as black markets and firms leaving industry’s , lower output and unemployment
• equity probelms