1.4.1 Regulation

Question 1

What is regulation?

Answer 1

It’s a attempts by the government to control behaviour rather than manipulating Price

Rule enacted by the government that must be followed by economic agents to encourage a change in behaviour

Question 2

How is regulation a non-market based approach?

Answer 2

Does not work by changing prices

Question 3

What approach do governments use when making regulation?

Answer 3

A command control approach

Question 4

How can regulation be commanded?

Answer 4

Through bans
Limits
Caps
Making it compulsory
Innovative regulation

Question 5

How can regulation be controlled?

Answer 5

Through strong enforcement

And effective punishment

Question 6

What happens if a command control approach on a regulation is both strong?

Answer 6

Incentive for economic agents to change behaviour

Move quantity to socially optimum

Solve issues in free market

Allocative efficiency and welfare gain

Question 7

What are some evaluative points on setting regulation?

Answer 7

Cost very costly as administrative costs by drawing up and enacting regulation and enforcement also expensive as policing required

Important to set the right regulation make sure set a right level set up Right strictness for people to have an incentive to change behaviour

If two strict unintended consequences could occur

Question 8

What will happen if regulation is too strict on firms?

Answer 8

If firms burden by higher post production and lower profits than unemployment may increase
Firm may leave the country
Firms may cheat the system

Question 9

What will happen if regulation is too or less strict on consumers?

Answer 9

Consumers may look at black market and smuggle in goods which will be a loss of tax revenue

If it’s too relaxed, people will have less of an incentive to change behaviour