In this video we’ll learn about prohibitions and licenses.
With a specific focus on what they are and their advantages and disadvantages.
While you are watching this video and comment below or in your own notes about some of the
prohibitions and licenses in your country and what their impact has been, for better
and for worse.
Prohibitions are laws that ban the sale or production of a good or service.
They can also be used to make certain practices illegal, such as employing children.
Common examples of prohibitions around the world include alcohol, drugs and prostitution.
Governments have a variety of reasons for prohibiting these things and we’ll look
at the case for and against prohibitions next.
On the surface, prohibitions seem like an effective solution to eliminating a problem.
If it is successful, there is likely to be an improvement in social welfare.
As the problem is reduced, there is also less money spent on policing the activity.
In the example of alcohol consumption, there is very likely going to be a reduction in
anti-social behavior.
These are all great reasons to use prohibitions, but unfortunately the reality can be quite
different.
Hence the disadvantages of this approach.
Once you make something illegal, you drive it underground and into the black market.
There are many countries in the world where drugs and alcohol are forbidden, but people
can still access it.
If you are watching this video in a country where something is prohibited, comment below
on whether or not the illegality has completely eliminated access to such things.
The ownership of such industries removes from legitimate businesses to the criminal underground.
Second, once something is prohibited and not traded legally, there is a loss of tax revenue
from its sale.
You may still have social problems and actually face rising policing costs as the black market
is hard to control.
If people are buying products on the black market, there are no more quality assurances
that come from the government on such products.
Some argue that the legalization of marijuana in the U.S. has led to the improved quality
of the drug available in some states.
In countries where alcohol is prohibited, some home made versions have potentially dangerous
side effects.
Government oversight and control of production would help address these issues.
Finally, a prohibition infringes on consumer sovereignty.
The consumer loses their right to choose what to consume and instead this decision is made
by the government.
A license is a legally required document that permits a firm or individual to conduct a
certain activity.
The one most people are familiar with is the driving license which permits you to operate
a certain type of automobile.
Businesses may need licenses for a variety of reasons including building, selling certain
types of products or conducting specific activities.
Individuals may require a license for working in a specific field, such as teaching or medicine.
Additionally, they may also need licenses for things such as driving or owning pets.
As before, there are advantages and disadvantages of licensure.
The first advantage would be improved standards.
With government oversight, they can ensure that the person or business in need of the
license meets sufficient requirements to carry out such activities.
You would most likely visit a doctor with a medical license over one who does not have
one.
Licenses can also help provide consumers with higher qualities of products or services.
If you are visiting a restaurant that is licensed to serve food, it will have to meet certain
health and safety standards to be permitted to serve you.
If you are getting a haircut from a licensed professional, you may be more likely to get
a better haircut.
However, much like prohibitions, licenses are not a perfect solution.
The requirement of licenses increases business costs and legal compliance costs.
These could mean higher prices to consumers.
With regards to occupational licensing, this could limit the number of people entering
a profession such as teaching.
The requirements necessary to join a certain field may be high enough to restrict access
to a privileged group.
This shortage of supply in the labor market could lead to higher wage rates and consequently,
higher prices for consumers.
All in all, licenses can be effective at improving consumer welfare but it can sometimes come
at a cost.
It is important to be aware of this as you consider the merits of government intervention.
That wraps up this video on prohibitions and licenses.
You should be more comfortable about the advantages and disadvantages of each.
If not, email me at enhancetuition@gmail.com or leave a comment below.