regulation refers to government regulation of a firm where the government sets a price level several years in

advance. In this case, the firm can either earn high profits if it manages to produce at lower costs or sell a

higher quantity than expected or suffer low profits or losses if costs are high or it sells less than expected.

11.4 The Great Deregulation Experiment

The U.S. economy experienced a wave of deregulation in the late 1970s and early 1980s, when the government

eliminated a number of regulations that had set prices and quantities produced in a number of industries.

Major accounting scandals in the early 2000s and, more recently, the Great Recession have spurred new

regulation to prevent similar occurrences in the future. Regulatory capture occurs when the regulated
industries end up having a strong influence over what regulations exist.

Self-Check Questions
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