Question

Pick an industry other than the financial sector that requires regulation.

1. describe in some detail and identify the market

2. model it to make sure to set it within the IE terminology

3. clarify why it requires regulation

4. what sort of regulation should be applied to this industry and why?

5. what difficulties might face in applying regulation to this industry.

P.S: this is a government and business class question.

Answer 1

1.One of the industries that requires government regulation is health care. The use of both public and private health care schemes is on the rise with a growing awareness about the importance of health insurance and the link between productivity and health. There are a host of private and public firms that provide health care schemes .

This industry is a monopolistically competitive industry—with a large number of firms involved in selling various heath care schemes , where there is product differentiation yet the scheme of one company seems to be similar to the other in many aspects – a phrase called –products being close substitutes. The entry into the market is also relatively easy.

2.The very high costs of health care are one of the main reasons for the need for governmental regulation in this sector. Moreover rising costs of health insurance have also been cited as an important cause for the need for regulation of this sector. It has been noticed that the number of persons who did not take a health insurance has been rising due to the growing health expenses.

3.For instance, getting a vaccine against a disease reduces the possibility of ill health and raises the productivity of the individual yet they have to balanced against the costs of providing the vaccine at a price that is more competitive and not prohibitive! Since the marginal social benefit that the society derives from the usage of the vaccine and its benefits ids higher than the marginal private benefit of producing the vaccine to its seller. Hence this shows that health acre being a merit good requires governmental regulation so that it becomes economically accessible for its consumers.

4.

Regulations can be in the form of a ceiling on the selling price of various health care schemes . Since the costs are vey high , subsidies can be provided to health care firms . This in effect could have a cost reducing effect making health care more accessible to its users. The States should also adopt an expanded health care programme with regulations that private sector should also be called upon to participate in the State sponsored health care programmes in order to help the rising number of uninsured get insurance.Health Care should be made an important aspect of government budget . The government should lay down cost regulations regarding the costs of production of health care firms and must have personnel to monitor the adherence of the regulations.

5. The high costs of production involved in health care , cited as one of the prime road blocks, could lead to the producers protesting against growing regulations on health care. Governmental policies and regulations have a considerable effect on the supply of a commodity and hence the sellers, especially form the private sector , could protest against the regulations which in effect could lead them to lower profit margins. Since health care is a merit good, the marginal social benefit being greater than marginal private cost, could lead to wide spread criticism of the regulations, with the sellers not wanting to provide health care schemes for lesser profit margins.