tradable pollution permits

• What is the definition of regulation in economics?

  A rule of law enacted by the government
• Regulation is a non-market-based approach to solving market failure.
• Regulation relies on the price mechanism to change behavior.

  False
• Why doesn't regulation depend on price elasticity of demand?

  It's a non-market-based approach
• Match the type of regulation with an example:

  Caps ↔️ Emissions caps for firms

  Time limits ↔️ Limits on alcohol serving hours

  Compulsory ↔️ Compulsory graphic imagery on cigarette packets
• The deposit recycling scheme in the UK encourages recycling by adding extra money to the price of plastic bottles and aluminum cans.
• Strong enforcement and effective punishment are essential for regulation to work.
• Steps needed for regulation to incentivize behavioral change

  1️⃣ Strong enforcement of the regulation

  2️⃣ Effective punishment for non-compliance

  3️⃣ Change in behavior to reach socially optimum level
• What is the ultimate goal of regulation in addressing market failure?

  Maximize welfare
• Regulation is cost-free to enforce and administer.

  False
• The enforcement of regulation often involves costly policing.
• What might happen if regulation is set too strictly on firms?

  Firms may leave the country
• If regulation is too lax, it may fail to change behavior sufficiently to solve the market failure.
• Black markets can emerge if regulation is overly strict.
• What is a tradable pollution permit scheme designed to address?

  Reduce pollution fairly
• Regulation is often criticized for being paternalistic.