Ch 14 - Regulation and antitrust laws

Ch 14 - Regulation and antitrust laws - Ch. 14: Regulation...

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Ch. 14: Ch. 14: Regulation and antitrust  Regulation and antitrust  laws laws Olivier Giovannoni ECO 304K: Introduction to Microeconomics
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Outline: Outline: The government: skinny cat?  (acts for the common good) or fat cat?  (does not)                            and why?
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Real outline Real outline So far much of our attention was on individuals and firms. Yet  there is a third big player in the economic arena: the  Government. This chapter introduces a few basics of the  government and then the results are applied to various  problems in the next 4 chapters. The main question is: when  does the government intervene in the private sector, how, and  is it good or bad? 1. Theory of Government 1. Monopoly and Oligopoly Regulation 1. Regulation and Deregulation
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1. Theory of Government 1. Theory of Government What is the role of the government? a) To maintain property rights and set rules for distribution of  income (through taxation) b) To correct for  market failures  when the market does not naturally lead to equilibrium when there is excess supply or excess demand when the pursuit of self-interest does not lead to social interest Typical situations requiring the action of the  gov’t: Externalities  (chap. 15) are situations when a person’s  action has unanticipated consequences (ex: pollution) Public goods  (chap.16) are goods enjoyed by everyone  and that cannot be charged individually (ex: defense, law  and order,  some types of transportation) Common resources  (chap 16) are resources which  everybody enjoys but which are owned by no one. (ex:  oceans, nat’l parks) Income redistribution  (chap. 18). The market economy  creates an unequal distribution of income, which is 
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1. Theory of Government (…) 1. Theory of Government (…) Here we will adopt a view of government called “ public  choice ”, represented on this graph (it’s not the only  theory of the government) Voters and firms  demand   regulations and will vote  following their best interest.  Politicians and bureaucrats  supply  regulations in their  best interest: to be re-elected,  they will follow the general  public opinion. In fine the  general opinion prevails: we  reach a political equilibrium  when everybody is happy  with the policies and their  outcomes.
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2. Monopoly and oligopoly  2. Monopoly and oligopoly  regulation regulation Monopoly and oligopoly  are situations where resources  are not allocated efficiently. The gov’t has to jump in,  using regulation:  an administration determining or influencing prices,  standards, etc… (ex: price administration during WWII)
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This note was uploaded on 04/29/2009 for the course ECON 33815 taught by Professor Giovannoni during the Fall '08 term at University of Texas at Austin.

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Ch 14 - Regulation and antitrust laws - Ch. 14: Regulation...

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