Business – 6.1 External influences – Economic | e-Consult
6.1 External influences – Economic (1 questions)
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Model Answer:
Regulatory measures directly limit what firms can produce, how they operate, or who may enter a market. They are often used to protect health, safety, and the environment.
| Regulatory Tool | Advantages | Disadvantages |
|---|---|---|
| Licensing | Ensures minimum competence; can protect consumers. | Creates entry barriers; may lead to rent‑seeking and reduced competition. |
| Standards (e.g., safety, emissions) | Improves product quality; reduces negative externalities. | Compliance costs can be high; may disadvantage smaller firms. |
| Bans | Provides a clear, absolute prohibition of harmful activities. | Can create black markets; may be politically contentious. |
While these tools can effectively curb undesirable business behaviour, policymakers must balance the protective benefits against potential inefficiencies, reduced innovation, and the risk of unintended economic consequences.