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    Economics of Regulation

    Economics of regulation, or economic regulation, describes the actions that governments take to manage how firms and individuals behave in the private sector. Types of economic regulation include improving market failure and equity interests in private companies.

    The central tasks of the government include deciding who will receive the benefits or costs of regulation, how the regulation will be implemented, and the effect the regulation will have on resources. Regulations can be beneficial or costly to private firms, which is why they are either sought out or are forced upon firms. The government also manages the regulation of prices and entry into markets or industries, as well as taxes and subsidies.

    Governments have to intervene in the conflict between commercial procedures and the consumers using public services. Regulation needs to be implemented to balance profit maximization, market failure, as well as externalities. Governments implement regulation to make sure services are properly delivered and businesses are still able to develop.

    To make resource allocation more efficient, governments will use economic regulation to manage the distribution of income. Economic efficiency helps to regulate monopolies and by controlling output and raising prices,  the optimal amount of goods and services will be produced.

    Social regulations are also a part of the economic of regulation. Social regulation is how the government manages how a single business or individual conducts their economic activities, with the objective of improving any market failures. To achieve their market goals and social goals, governments will regulate the output of agriculture, the conduction of transportation, and other areas.

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    Economic regulation, efficiency, and externalities

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    Study questions

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