Question

1. Why regulate the economy at all? Administrative agencies have the power to create regulations, to investigate businesses for compliance, and to enforce statutory and administrative law. People disagree as to how much regulation is required, but most people agree it is a practical necessity. Your book provides a variety of reasons as to why it may be necessary to regulate the economy.

Select 3 reasons for regulation that are discussed in your book and that you find interesting. Perhaps you agree or disagree with the author, or perhaps you hadn’t considered the topic before. Keep in mind that even if you have no personal interest now, you will have an interest when your business concerns are regulated in the future.

Do not merely list the reasons as to why it is necessary to regulate the economy. Write 2-3 sentences for each of the 3 reasons you selected. Your answer should demonstrate a clear understanding as to why the economy is regulated. If you disagree with the author, you may explain why. If you can not come up with 2-3 sentences for each “reason”, select additional reasons to discuss.

Possible discussion points:

• Is your classmate's summary of the article complete and accurate?
• Do you agree or disagree with your classmate's evaluation? If you agree, is there another view point to be considered?
• Is there additional information in the article that you find interesting?  

Answer 1

Introduction

All countries across the globe, even the ones which are relatively considered as free market economies such as the United States are subject to regulations which are imposed by the government for smoother functioning of the country and the market in general.

Across the years, countries have formed various laws, rules and regulations that have helped business owners in keeping their interests secured and has promoted healthy competition in the market place. The necessity for government backed regulations arise because market forces are not competent enough of looking at the bigger picture & does not consider factors such as income distribution and other social factors as important.

Case Specifics:-

Considering the current case, in which the government is set to have regulations in place in the near future the following are the reasons for the same and the effects which it will have on the market and on any producer in the market respectively.

• Reduces Chances of Creation of Monopolies and Protects Small Producers

The creation of regulatory bodies in a market, and enactment of laws help governments in reducing the chances of their being monopolies in the market place. Monopolies usually can charge any amount from the customers and serve as the only group that produce a particular product. Since these companies have higher capital availability, they tend to eat into the profits of small business owners and thus create market in equilibrium.

Thus, to promote a market structure, that allows small and big enterprises to have equal opportunities for success and to avoid creation of monopolies, governments across the globe will continue to bring in regulations to allow for better level playing fields which increase transparency

• Increases Customer Welfare

Customer welfare is not only advantageous for the customers alone but leads to higher developments in firms which increases economic development and overall demand patterns in an economy also. Regulations help in controlling the quality of products being produced and the prices to a certain extent. This ensures that customers do not get substandard products and the market does not produce those goods which can cause damage to the consumers.

As a result of regulation, customers get value for money products and services which are essential for economic development of any country.

• Moral Issues:-

Consider an economy with no regulations in place. The demand for illicit products in this case such as drugs could be extremely high. It may also be profitable for producers to mass produce such products, and there could be a huge demand for the product which can encourage investment. However, without active regulation the concept of morality cannot be achieved in the society.

The government in this regards is accountable not only to what people want but the bigger picture in which other factors such as healthcare, crime rate etc. can get effected. Thus to discourage such exercises, regulations are in place because the government can think beyond market considerations and regulate production of certain types of goods and services respectively.

Please feel free to ask your doubts in the comments section if any.