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Can excessive government regulation hurt markets? Explain with suitable examples.
Show Answer
Yes. Too much regulation can hurt markets in three ways.
| Harm | Example |
|---|---|
| Producers supply less | A maximum wheat price of Rs 20 when the market price is Rs 30 makes farmers grow less, causing shortages |
| New businesses do not start | A small restaurant needs many licences and permits, so some people give up the idea |
| Less innovation | If prices are fixed too low, farmers do not invest in better seeds or technology |
- So regulation should be used carefully, only as much as needed.
