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Necessity of social regulation

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Discuss the claim that social regulation is unnecessary. Does the claim depend on whether the industry is perfectly competitive or is an oligopoly?

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Solution Summary

Market competitiveness and social regulations are examined. The expert discusses the claim that social regulation is unnecessary and whether the claim depends on whether the industry is perfectly competitive or is an oligopoly.

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Social regulation is a means of keeping businesses from excessive profits to the detriment of consumers. We would like businesses to produce at a point that covers their costs so they can remain in business. The most efficient level of production, socially speaking, occurs when social marginal benefit = social marginal cost. Firms that are maximizing profits will produce where private MC= MR. In order to reduce or increase production to a socially optimal level, the government often intervenes. Examples include pollution abatement and worker safety.

Some argue that government interference in the market results in more harm than good. In other words, while the market may not be completely efficient, the government is even less so. ...

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