Deregulation can solve the problem of regulatory capture and increase economic eﬃciency
A) if the deregulated industry quickly evolves into a monopoly.
B) if the deregulated industry becomes more competitive.
C) when the regulations covering the industry are tightened.
D) when the industry ends up generating substantial external costs.

Question

Quizplus · Accepted Answer

Deregulation can increase economic efficiency by promoting competition in the industry. This reduces the likelihood of regulatory capture, as multiple firms compete for market share and must adhere to market forces rather than simply pleasing regulators. However, if the industry quickly evolves into a monopoly, then the benefits of deregulation may be lost. Tightening regulations or generating substantial external costs may also be necessary to correct market failures, but these are not inherently linked to the benefits of deregulation.

Deregulation Can Solve the Problem of Regulatory Capture and Increase