Discuss Whether Regulation Is the Most Effective Way in Correcting Market Failure Such as Those Arising from Increased Carbon Emissions.

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Regulation is the application of laws and rules created by the government, designed to correct percieved market failure. Market failure occurs when resources are not allocated in the best possible way. In order for regulation to be effective, the government will require enough information in order to correct market failure. There are a number of problems with regulation, the first is that it is often difficult and costly to impliment. In the case of pollution and carbon emissions, it is very hard to actually measure the level of carbon emissions being produced from a company. And even if you can it will be very costly, which means there is an opportunity cost of implimenting the law of how much carbon emissions can be produced. Realistically, all regulation can hope to achieve is a reduction in environmental damage and a movement towards the optimum level of output. A second difficulty with regulation is that the government must have the correct information, and therefore know the optimum level of output. This requires the perfect information which is rarely even achieved. The government would find it hard to find the level of carbon emissions that is the correct amount. Some firms may not cut their emissions of pollutants if the fine they receive is less than the benefit they derive from polluting. Regulation of carbon emissions can also create a market for tradable permits. Other forms the government can use to correct market failure could include taxation, subsidies and information provision. These all all effective ways of correcting market failure, but the effectiveness of them depends on a number of things also. Just like regulation, the correct information must be known by the government, the price elasticity of demand and supply and the correct level of output. In the case of information provision, the correct information must also be provided

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