Question #22
Reading: Reading 7 Economics of Regulation
PDF File: Reading 7 Economics of Regulation.pdf
Page: 10
Status: Unattempted
Correct Answer: B
Question
Regarding the impact on industry of regulation, regulation is least likely to:
Answer Choices:
A. reduce inefficiencies in the industry
B. benefit the industry being regulated
C. increase the size of an industry
Explanation
Regulation can increase the size of an industry, for example through the use of subsidies.
Regulatory capture means that regulation can sometimes benefit the industry being
regulated. However, regulation is also likely to introduce inefficiencies – such as the
implicit government bailout guarantees of the financial sector which lead to credit spreads
that do not fully reflect the credit risk.