According to the Library of Economics and Liberty, government regulations help avert market failures and improve unfairness within the system, but regulations also pose burdens upon businesses and individuals. Government regulations place limits on the freedom within which one operates; however, the goals of society deem such intervention necessary in some cases.
When businesses behave in ways that produce externalities, government regulation acts as a way to balance this failure in the outcome of competition. For instance, government regulation on pollution from a manufacturing plant corrects the externality on local communities surrounding the plant. Government regulations also correct inequalities and promote positive liberty, or the opportunity to fill one’s own potential; initiatives, such as Affirmative Action, provide opportunities in education and employment. Tax or direct cost is often the result of government regulation to correct externalities. In terms of social inequality, the advancement of one group is at the cost of another. This is due to the scarce amount of resources available in a society. Government regulations lead to different behaviors and consequences. The rules of the society determine the extent to which such regulations are necessary.