regulation and market failure

Question 1

regulation definition and what it is used for

Answer 1

-a rule/law enacted by the government that must be followed by economic agents to encourage a change in behaviour
-used to resolve negative externalities

Question 2

regulation and how it resolves market failure

Answer 2

-non-market based approach
-command and control approach- command(bans, limits, caps, compulsory), control (enforcement and punishment)
-incentivises a change in behaviour
-resolves issues in the free market
-promotes allocative efficiency and welfare gain

Question 3

issues with regulation and market failure

Answer 3

-cost of implementing regulation
-setting the right regulation
-black markets and unintended consequences
-equity