What is regulation in an economic system?

In a market economy, the main function of the Government is to ensure the integrity of the financial and economic system in order to guarantee the conditions for companies to develop and compete for market share through price competition.

Thus, regulation is the tool the government has to curb any practice of collusion or excesses by companies. Government regulation dictates the rules of the game, and companies that participate in the market must comply with these rules. For example, the government can regulate the volume of credit so that banks do not exceed loans and thus avoid a crisis as there was in the 1930s. In addition, the government also acts as regulator of the quality of goods and services offered, ensuring that the population is not harmed.

Regulation in economic system is the placing of limits or restrictions on business activity by the government.  

Further Explanation:-

Regulation can be called as a legislation that is imposed by the government on Private organizations and on individuals in order to do the modification of economic behaviors. This conflict can take place between public services and commercial procedures and it is done in the interest of the people who use those services along with those who are not part of these transactions and because of all these, most of the governments therefore have some control or regulation in order to take control and manage the possible conflicts that could occur.

The main reason behind the regulation of Economy is to ensure that delivery of a safe and appropriate service and not to discourage the effective functioning and development of business. In many countries this regulation looks after control of consumption in regards to alcohol and prescribing drugs. Regulation in economic system places the limits and restrictions in regards to the business activity of the government.

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Answer Details:

Grade – High School

Subject – Economy

Chapter – Economy Regulation

Keywords – Regulation, Economy Regulation, Conflicts, Limitation, Trade, Government, Consumption, Functioning, restrictions, Appropriate.  

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