regulation and market failure

• What is the definition of regulation in economics?

  A rule of law by government
• Regulation is a market-based approach to solving market failure.

  False
• Regulation is a command-and-control
• What are some examples of regulatory commands?

  Smoking bans, age limits, caps
• Compulsory graphic imagery on cigarette packets is an example of regulation.
• The deposit recycling scheme in the UK is an example of innovative
• What are the two key components of effective regulation control?

  Enforcement and punishment
• Weak punishment can undermine the effectiveness of regulation.
• Regulation aims to change behavior by shifting quantity towards the socially optimum level
• What are two issues associated with regulation enforcement?

  Cost and compliance
• Enforcing regulation can be costly for governments.
• Regulations set too strictly may increase costs and reduce firm profitability
• What is an unintended consequence of strict regulation on consumers?

  Black market activity
• Firms may try to cheat regulations to avoid compliance.
• Blanket pollution caps may be unfair to firms dependent on fossil fuels
• What is an alternative policy to pollution caps that promotes equity?

  Tradable pollution permits
• Regulation can be seen as paternalistic due to its limitations on freedom.