A Level Economics AQA Practice Exam

What is regulation in an economic context?

1. A law that mandates minimum wages for workers

2. The elimination of market competition

3. The use of government authority to control private sector practices

4. The market's natural adjustment to supply and demand

The correct answer is: The use of government authority to control private sector practices

In an economic context, regulation refers to the use of government authority to control private sector practices. This can encompass a wide range of government actions aimed at maintaining fair competition, protecting consumers, ensuring environmental standards, or addressing market failures. Regulations can take various forms, such as laws, rules, or guidelines that businesses must follow, influencing how they operate and interact with consumers and other businesses. Regulation plays a crucial role in markets where free competition might not lead to socially optimal outcomes, ensuring that companies abide by specific standards that aim to protect the public interest. For example, regulations might dictate how much pollution a factory can emit, set safety standards for products, or impose requirements for transparency in corporate reporting. The other options provided focus on different aspects of economic activity. For instance, mandating minimum wages pertains to labor laws specifically, eliminating market competition contradicts the principle of open markets, and the market's natural adjustment to supply and demand refers to market self-regulation without governmental intervention. Each of these areas may intersect with regulation, but they do not encompass the broader definition of regulation itself in an economic context.