Regulation

Laws that are implemented to encourage or discourage the production or consumption of a good or service.

Examples

Consumption

• Age restriction
• Smoking indoors ban
• Driving licenses
• Pictures on packaging
• Products not on show
• Gambling restrictions
• Education until 18

Production

• Quotas / limits on production of some products
• Environmental Laws
• Employment, such as National Minimum Wage
• Health and safety laws

Positives

• Regulations are backed by the law, there are consequences if they are broken
• Widely used and proven to be effective, such as the smoking ban indoors.
• If used correctly, they create a socially optimal outcome
• Not regressive

Negatives

• Can lead to the creation of an illegal marketplace
• Opportunity cost in enforcing regulations. Must be policed, which is expensive
• Deterrent must be large enough, to discourage individuals / firms from breaking the regulations
• If fines / deterrents are set incorrectly, this is a form of government failure
• Environmental regulation - difficult to prove who has broken the regulation.