Why are businesses regulated by government authorities?

Businesses are regulated by government authorities primarily to address market failures and externalities. Market failures occur when the allocation of goods and services is not efficient, leading to undesirable outcomes for society. For example, in the absence of regulation, companies might produce harmful products or engage in practices that lead to pollution, which are negative externalities that affect third parties not involved in the transaction.

Regulation helps ensure that businesses operate in a manner that considers the welfare of consumers and the community at large. It sets standards for product safety, environmental protection, and fair market practices, all of which aim to mitigate the negative impacts of unchecked business activities. By establishing regulations, governments can promote fair competition, ensure consumer protection, and encourage businesses to adopt socially responsible practices.

In contrast, options such as maximizing profits, eliminating competition, or controlling employee salaries do not reflect the primary purpose of regulation, which is centered around safeguarding public interest and improving market efficiency.