2.11 Government Intervention (LEGISLATION AND REGULATION)

Question 1

what is legislation

Answer 1

when the government pass laws to impact on the behaviour of society

e.g. banning drugs

Question 2

what is regulation

Answer 2

occurs when the government seeks to provide effective competition within markets.

govt believes that this will protect the interest of consumers so that they are not exploited by firms

effective regulation will lead to greater choice and lower prices

Question 3

define regulation

Answer 3

Regulation involves rules set by government agencies to modify the behaviour of firms or consumers, often to correct market failure.

Question 4

What are common examples of economic regulation?

Answer 4

Environmental rules (e.g. pollution limits)

Health & safety standards

Price caps in monopolies

Financial conduct rules

Question 5

How does legislation help correct market failure?

Answer 5

By banning or restricting harmful goods (e.g. drugs, child labour), it reduces negative externalities and protects consumers

Question 6

What are advantages of legislation and regulation?

Answer 6

Clear and enforceable rules

Can directly stop harmful behaviour, reduces negative externalities

Promotes fairness and consumer safety

Question 7

What are disadvantages of legislation and regulation?

Answer 7

High enforcement costs

Can create unintended consequences

Risk of regulatory capture

May reduce incentives to innovate