Regulation Flashcards
Reasons to regulate
Excess pricing
As there is little competition there may be little incentive to provide a certain standard of quality
Promote competition
Monopsony power - a firm with monopoly selling power may also be in a position to exploit buying power derive from ACL
Market failure
Where the free market fails to achieve an efficient allocation of resources because of imperfections in the market mechanism resulting in a loss of economic and social welfare
Productive inefficiency means
Resources are being wasted which could have been to satisfy wants and needs elsewhere
Allocative inefficiency means
that the value society places on the last unit of output does not reflect the MC of production
Methods governments can use to improve the working of markets
Regulation and legislation
Direct state provision of goods and services
Fiscal poverty intervention including indirect taxes and subsidies
Improving the quality and availability of information
Environment - distributional affects
In the case of global warming the relatively poor citizens of developing countries are more likely to be significantly affected by floods or drought
They are less likely to have consumes the goods or services that are said to have contributed to global warming whilst less likely to be able to afford to protect themselves against it
Distributional affects inequities
There are inequities between those who contribute to global warming and those who suffer from it
Citizens of industrialised nations pay less for their goods and services than social costs of production
Could impose tax on output of nationalised nations with the revenue used to compensate citizens of developing nations for their welfare loss
Pollution
the cost is external to the polluter therefore making it difficult for an economic agent to pass this onto wider society
