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Reasons for Government to Implement the Regulations in Economics
Introduction
In the contemporary world, the competitive market is a vital part of Economics, which is based on partial independence, complimented with the governments regulations. Business is the socially significant activity that influences the daily life of all the citizens that raises the necessity of strict external control over its development. Regulations are actions made by governments intended to meet public interests. They include several types, such as taxes and levies imposing, or in the opposite, subsidizing, to discourage or promote a certain activity, respectively (Wellen et al., 2021). The second form of regulation is compensation providing is implemented through government assistance and insurance. Finally, the government provides services and products that are not profitable for private companies but are of great significance for the community, which is called direct service provision.
The general purpose of such interventions is to provide equal possibilities for all of the markets members and ensure fair interactions between them and customers. The distinct and rational reasons that make the government implement the different regulations, three of which will be discussed in detail in this essay further. The demonstration of challenges related to protecting society through interventions will be provided
Key Reasons and the Example of Challenges during the Regulations Implementing
It is possible to distinguish a variety of primary reasons for the government to implement the forms of regulations as mentioned above of regulations. Among them, there are three ones that require particular attention to research the issue comprehensively. They are monopolies, windfall profits, and unequal bargaining power. The first reason is the initial one, as it represents the situation on the market, when one companys products own the major part of it, not allowing other businesses to operate successfully. It violates the principles of fair competition that is intended to benefit customers, as according to Baldwing et al. (2012), it leads to reduced output, higher prices, and transfer of income from consumers to producers (16).
Government can use competition laws to balance the situation and assist the smaller businesses to successfully sell their products even in the situation of a general inequity between them and monopolies. Windfall profits are earnings raised from obtaining cheaper sources of supply. They enable businesses to get an excessive profit and usually is regulated by the government through additional taxes (Baldwing et al., 2012). Unequal bargaining power is the phenomenon that displays the inadequate allocation of resources in a market. A temporary position in the marketplace can be beneficial for one side during the negotiations, while the other has to accept the proposed conditions. The government can protect certain interests to balance the situation and make negotiations to be fair (Baldwing et al., 2012).
It is possible to show the complexity of the regulations implementing through an instance. Nudging, which is the transformation of self-destructive behavior into a self-interested one, can be seen as a positive approach that enables to preserve the freedom of choice. An example of nudging is changing the order of products locating in cafeterias, which intended to show customers healthy food first and the unhealthy food after. It influences a consumers choice and induces them to accept a right one. On the other side, according to Wellen et al. (2021), it can provoke cosmetic behavioral changes, without addressing significant problems, such as consumers misperceptions; income inequality; resource access; structural lifestyle decisions (120).
Conclusion
Therefore, it can deteriorate the influence of other regulatory interventions through unrealistic expectations causing. It is possible to notice that this issue creates a dilemma that demonstrates one of many potential challenges related to regulation implementation.
References
Baldwin, R., Cave, M., & Lodge, M. (2012). Understanding regulation: Theory, strategy, and practice. Oxford University Press, 16-23. Web.
Wellen, R., Birch, K., Peacock, M., Hossein, C., Scott, S., &Salazar, A. (2021). Business, regulation and policy. EBSCO Publishing, 115-123.
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