Economic regulation, in general, is a form of intervention by the government through policies, designed to influence or in the sense of the word, regulate, some of the common behavior in the private sector. These policies deliberately affect aspects like loans, tax expenditures, public expenditures, interest rates and many of these similar aspects. These policies affect the pricing of come goods, minimum wages of some workers, rates of communication and the like (The Canadian Encyclopedia, 2010, para.1).
One of the reasons why government does these kinds of deliberate moves is so that it can in a way improve the allocation of resources and the efficiency at which they are allocated. Because of the interdependence in resource use, government has to find a way of regulating overexploitation of renewable resources. Another reason why government has to impose regulation is to vary the distribution of some of the income of the sellers involved in a certain resource, in order to reduce monopoly of certain kinds of resources. Also, regulations just happen to reduce certain dangers that are caused by the speed at which economic changes take place.
Effects of Economic Regulations in the Market
There are different reasons why the government would opt to regulate the exploitation of some resource, depending mostly on the effect it may cause. Some of the effects can be environmental while others can affect the market. One of the biggest impacts of the regulation is that it opens up a wider field of competition, which can be a plus for the consumer who capitalizes on the competition. Another important effect is that it distorts economic activity to a point where market failure occurs. This especially happens when regulation cost exceed the marginal benefit if the community. Losses are experienced and this happens to be bad for the economy (Crew & Parker 2006, p.24). Some of the entities that are affected by industrial regulations, for example that touch the environment may include those that are in a very big way affected by pollution. The reason why this entity is affected by regulatory measures is because some of these industries will be forced to pay higher wages so as to attract people to such a polluted area. Another of the entities is the polluters who are also affected and at the same time bare the burden of paying for working in such conditions. Some of these entities are temporary and vary from one place to another.
These are those regulations that affect the public in form of health, social cohesion and the person’s environment. Social subordination, being part of social regulation came into existence in order to control, in terms of reducing or increasing subordination, so as to fulfill certain social morals in society. Some of the entities that may be affected by the social regulations are those like insurance policies. These have been created by some governments in order to make sure that all the people may get access to a minimal form of health care that will be beneficial to their lives from the time of birth. The government decides to lay an open ground in order to have the public in good health.
A natural monopoly exists in a market when a firm by its own self has the ability to serve the whole market as can be compared with a combination of one or two other markets. They are a result of productive technology, such that there is only room for one player in the market with the ability to exploit the economy and serve the available market (Glossary of Statistical term, 2003).
According to the theory of economics, the company that is experiencing natural monopoly is more often than not synonymous to that company which has true monopoly in the same market. This is because the characteristics that are seen in the true monopoly are seen, to a great extent, in the behavior of the natural monopoly. An example of natural monopoly is software. In this industry, there can be no replacement for the kind of product that is being offered due to the nature of the product.
When the telephone system came into existence, it quickly assumed natural monopoly, seeing as it was a new idea which had the capacity to handle the entire market without competition. Such are the characteristics associated with at product that experiences natural monopoly.
Anti Trust Laws
The four major Acts that make up part of the Anti Trust laws have stemmed up from the Sherman Anti-Trust Act back in 1890. The basic idea behind this act was to reach out to the business world and make business as fair as possible for every player in the game. Many States have taken up this law and have modeled and redefined upon this old Act. Congress afterwards made additions at various times, just to build on the same. Some of these amendments involved The Clayton Act (1914) and The Robinson- Pitman Act in 1936. To administer and enforce the regulatory measures pertaining to these laws, the Trade Commissions Act 1914 was created. The regulation of any forms of unfair monopoly was administered through these laws and interpreted by the High Court (West’s Encyclopedia of American Law, 1997, para.2).
Regulatory Commissions of Industrial Regulation
The three main regulatory commissions include the Interstate Commerce Act 1887. This commission governed the use of the railway transportation as well as the transportation of heavy goods using the road transport network. Later it also governed the waterways of the country. The second commission is the Federal Reserve Act 1913 that catered for any emergencies that would take place just in case the country went into such a state and finally, there was the Banking Act 1933 that was a reassurance for the Americans for more stable and effective environment for running business.
Major functions of Regulatory Commissions that govern Social Regulation
The Social Regulatory Acts have their functions being to make sure that the nation adheres to the standards that are laid down in the Acts. Some of these stipulations include acts whose functions are to regulate the safe manufacture of food and drugs, while others specify the safety and the upholding of standards in the motor vehicle industry to avoid unnecessary accidents. There are regulations whose aims is setting the standards for product labeling, while the Consumer Product Act regulates the disclosure of credit terms when one is dealing with financial institutes. Other functions include regulating health and comfort in the workplace for employees in the country. Finally, we have acts whose aims are regulating the amount of air and water pollution. In essence, the government has been having the plans to make sure that the common citizen has an equal playing field with any other person as the Bill of Rights stipulates.
- Crew ,M., & Parker, D. (2006). Development in the Theory and Practice of Regulatory Economics. International handbook on economic regulation. 15 Lansdown Road Cheltenham: Edward Elgar Publishing.
- Glossary of Statistical terms. (2003). Natural Monopoly. Web.
- The Canadian Encyclopedia. (2010). Economic Regulation.
- West’s Encyclopedia of American Law. (1997). Antitrust Law. Web.