Question

Which of the following are sources of inefficiency in a regulated industry? Check all that apply.

a. The absence of competitive market prices

b. Paperwork and legal proceedings

c. The lack of a profit incentive to innovate

Answer 1

All options are sources of inefficiency.

Regulation leads to lack of competition, so the industry doesn't clear at free market forces of demand and supply. Regulation also leads to bureaucratic procedures causing delay and inefficiency. Finally, regulation often acts as a dis-incentive to innovation which causes market failure and inefficiency.