Regulation

Definition

This is any form of interference with the operation of the free market.

Methods of regulation

a. Audit
b. Rules and regulations
c. Price ceilings and floors

Costs of regulation

1. Enforcement cost- to ensure the regulations are complied with

a. Direct enforcement cost- incurred by the regulator
b. Indirect enforcement cost- incurred by the regulated companies
2. Regulatory capture
Big firms can influence regulations pertaining to them in their favour.

Advantages
a. Increases stakeholders confidence
b. Companies in very important industries not likely to fail

Not-for-profit Bodies

They are usually subject to a lower degree of regulation