Ch 19 - Government & Business

Ch 19 - Government & Business - CHAPTER 19 GOVERNMENT...

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CHAPTER 19 Competition vs Monopoly: - Competition as the fundamental business policy - Economists prefer competition over monopoly - Governments try to reduce the negative effects of monopoly by regulatory means Government Intervention in the Market Place: - Regulation = rules administrated by a gvt agency (prices, production standards & types of entry conditions etc) - Nationalization = the act of placing a corporation under public ownership (crown corporations in Canada) - Legislation = legislation to influence market behaviour take the form of laws defining illegal conducts - Deregulation = process of removing restrictions on prices, production standards & types, entry conditions etc (eg domestic air transport, crude oil & natural gas & banking) - Privatization = process of selling a publicly owned corporation to private shareholders - Natural Monopoly = an industry in which one firm can supply the entire market at lower price than two or more firm can How to Control Natural Monopolies: - Legislation & Regulation - Actions by Government Regulatory Commissions - Use of Market Concentration Ratios - Anti-Combine Law (Antitrust law in the USA) Regulation of Monopoly: Fair Rate of Return Average Cost Pricing: P 2 $ Q 2 D AC Output
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Effects of Regulation on Efficiency: Regulatory Lag - A delay between a proposed price change and its ultimate disposition - While the regulatory lag restores some of the incentives for efficiency, it does not result in as strong a set of ince2ntives as do competitive Example: Gaz Metro Rate The Gaz Metro is engaged in a rate case with Régie de l'énergie de Quebec, the regulatory body. The demand curve for the firm’s product is P = 1000 – 2Q where, P is price/unit of output ($) and
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Ch 19 - Government & Business - CHAPTER 19 GOVERNMENT...

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