A Level Economics AQA Practice Exam

Under regulatory capture, which party benefits the most?

1. Consumers who receive better protection

2. The regulatory agency that is acting independently

3. The industry that is supposed to be regulated

4. Government officials who impose fines

The correct answer is: The industry that is supposed to be regulated

Regulatory capture occurs when a regulatory agency, which is meant to act in the public's interest, becomes dominated by the industry it is meant to regulate. This often happens because industry representatives exert influence over the regulators, leading to regulations that favor them instead of protecting consumer interests or ensuring fair competition. In this context, the industry that is being regulated benefits the most as it can achieve more lenient regulations or less stringent enforcement. This can lead to increased profitability for the industry, potentially at the expense of consumers who may face higher prices or lower-quality products and services. The regulatory agency, instead of acting independently, aligns more closely with the interests of the industry, which can result in a failure to fulfill its original mandate. Consequently, the government's role in imposing fines may become less significant as the regulations themselves may become less onerous for the industry, leading to lesser penalties overall.