Question

The "revolving door" effect occurs when the relationship between business and government becomes too close, as when executives from the private sector leave their jobs to work for government agencies, becoming the regulators rather than the regulated, and then return to industry.

A) True
B) False

Answer 1

The 'revolving door' effect describes a scenario where business executives transition into government regulatory roles and potentially back to the private sector, leading to a potential conflict of interest and regulatory capture.

Step-by-step explanation:

The revolving door effect indeed occurs when the relationship between business and government becomes overly intimate, facilitating a scenario where executives from the private sector cyclically move into government positions, only to regulate the very industries they once operated in, and potentially return to those industries later. This process can lead to regulatory capture, where regulated firms heavily influence or control the very agencies established to oversee them. Such situations may result in government price regulation serving the interests of the firms instead of the consumers, as firms can collaborate to decrease output, maintain high prices, and stymie competition.