Y1 31 Regulation and Market Failure

Question 1

What is a regulation?

Answer 1

Rule/law enacted by government that economic agent must follow to encourage behaviour change, non-market solution

Question 2

Regulation command

Answer 2

Bans: Public smoking ban indoors
Limits: Age minimums, time limits
Caps: Emissions caps
Compulsory: Vaccination
Innovative: Deposit recycling

Question 3

Regulation control

Answer 3

Enforcement: Police, regulators
Punishment: Fines, publicity, jail

Question 4

Regulation pros

Answer 4

If command and control strong, behaviour incentivised
Solves externalities, allocative efficiency & welfare gain

Question 5

Regulation cons

Answer 5

Cost: Admin cost, policing
Regulation setting: Strictness, unintended consequences, first cost increases firms leave market, firms cheating system
Black market: Smuggling, increased policing, tax loss
Equity: Pollution caps, difficult to reduce due to pre-existing infrastructure
High gov. failure risk