ch14 - Competition Policy The Economic Theory of Government...

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Chapter 14 Competition Policy The Economic Theory of Government Governments exist for two major reasons: o They establish and maintain property rights and set rules for the redistribution of income and wealth o They provide mechanisms for allocating scarce resources when the market economy results in inefficiency— market failure occurs However, the government is not always successful in allocating scarce resources, leading to government failure —a situation in which government actions result in inefficiency. We use public choice theory to study the political marketplace. The actors in the political marketplace are voters, firms, politicians, and bureaucrats. The political equilibrium is the situation in which all the choices of the voters, firms, politicians, and bureaucrats are compatible and in which no group can improve its position by making a different choice. Monopoly and Oligopoly Regulation Regulation consists of rules administered by a government agency to influence economic activity by determining prices, product standards and types, and the conditions under which new firms may enter an industry. These rules are administered and enforced by an agency. Deregulation is the process of removing these restrictions. In Canada, a publicly owned firm is called a Crown corporation . An
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This note was uploaded on 06/30/2009 for the course ECON 1020 taught by Professor Parkin during the Spring '09 term at UWO.

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ch14 - Competition Policy The Economic Theory of Government...

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