Definition of Industrial (Economic) Regulation
Economic regulation is a term which refers to a type of government regulation responsible for setting prices, terms or conditions of new firms into an industry. Therefore, economic regulation outlines clearly the conditions to be met by a new firm entering the market. On the other hand, economic regulation can also be used to mean the regulation of financial business entities. Additionally, there are other types of regulations employed by the government like the social regulation which encompasses environment and health issues.
Reason for Industrial Regulation
On the other hand, economic regulations are important in the industry since they prevent firms from setting high prices for their products and services. Moreover, the government uses economic regulations in improving efficiency within the society and thus equitable allocation of resources. Additionally, the other goal of economic regulation is to allow fair and equal distribution of income thus achieve social and cultural goals and objectives of efficiency.
Impact on Market
Economic regulation impact on the market is of significant importance. First and foremost, in improving economic efficiency, monopolies have to be regulated. In this case, output restriction and rising of prices restricts socially optimum production of goods. Therefore, they help in eliminating profits by monopolies and some kinds of price discrimination. Additionally, regulations help in prevention of overexploitation of renewable resources.
Definition of Social Regulation
Social regulations involve government regulations responsible for correction of externalities exhibited in many firms. In this case, social regulation embraces environmental controls, health issues and safety, restrictions on advertising and labeling. Therefore, social regulations are objectively aimed at protecting the entire environment and the society in general from harmful effects of industrial production.
How Social Regulation Affects Entities
Social regulations affect the firms in a myriad of ways. For instance, firms are obliged to control their waste emission in order to prevent and conserve the environment. Additionally, there can be some social regulations employed in terms of fine which help to prevent or exploration of resources or environmental pollution.
Definition of Natural Monopolies
Natural monopolies refer to a monopoly that prevails as a result of the cost of production being low. In this case, firms set their own prices and regulate the amount of production. On the other hand, monopolies produce goods and services inefficiently. Therefore, these kinds of markets are exploitative in nature.
Example of Natural Monopolies
Additionally, the main existence of natural monopolies is due to economies of scale. In this case, the cost of producing an additional unit of a product tends to reduce as the output increases. Therefore, the most common type of natural monopolies includes utilities such as pipelines, railroads, electric power transmission systems and water supply systems.
Justification and Establishment of Natural Monopolies
Moreover, natural monopolies can reduce the amount of production and raise the prices. In this perspective, natural monopolies act in an exploitative manner and thus inefficient in production of goods and services. Therefore, government tries to avoid the establishment of monopolies to avoid price inflation and restriction of goods.
Governing of Industrial Regulation
Governing industrial regulation involves a well-established policy and rules which help in control of the economic regulations. Additionally, industrial regulations need to be followed and adhered to in order to achieve the desired goals and objectives.