Command and Control

• Government regulation is the process of controlling consumption and production activities through laws and administrative rules.
• Types of Command and Control Policies:

  • Standards
  • Bans
  • Compulsory Consumption
  • Direct Provision
• Flaws of Command and Control:

  • Imperfect information
  • Monitoring and enforcement
  • Political resistance
  • Effects on government's budget
• In the case whereby MEC is so large that MSC exceeds MSB at all levels of output, it would leave society with a deadweight loss, a b c d. Hence, the only policy to achieve allocative efficiency is a ban to prevent consumption/production.

  
• In the case whereby MEC is not as significant, allowing for socially optimal output to occur at a positive level, imposing a ban would change the deadweight loss from c d e to a e f. The ban is only considered effective if the new deadweight loss is smaller than the previous one.

  
• For the government to impose quotas or maximum production levels (standards), a fine may be imposed.
• When making the consumption of a good compulsory, the government has to subsidise or freely provide the good as not everyone has the means to pay the market price for the good.