Ch 14 - Regulation and antitrust laws

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

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Unformatted text preview: Ch. 14: Ch. 14: Regulation and antitr ust Regulation and antitr ust laws laws Olivier Giovannoni ECO 304K: I ntroduction to Microeconomics Outline: Outline: The government: skinny cat? (acts for the common good) or fat cat? (does not) … and why? 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. Theor y of Gover nment 1. M onopoly and Oligopoly Regulation 1. Regulation and Der egulation 1. Theor y of Gover nment 1. Theor y of Gover nment → What is the r ole of the gover nment? a) To maintain property rights and set rules for distribution of income (through taxation) b) To correct for mar ket failur es 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 r equir ing the action of the gov’t: ◦ Exter nalities (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 r esour ces (chap 16) are resources which everybody enjoys but which are owned by no one. (ex: oceans, nat’l parks) ◦ I ncome r edistr ibution (chap. 18). The market 1. Theor y of Gover nment (…) 1. Theor y of Gover nment (…) 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. I n fine the general opinion prevails: we reach a political equilibrium when everybody is happy with the policies and their outcomes. 2. M onopoly and oligopoly 2. M onopoly and oligopoly r egulation r egulation M onopoly and oligopoly are situations where resources are not allocated efficiently. The gov’t has to jump in, using ◦ r egulation: an administration determining or influencing...
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This note was uploaded on 09/10/2009 for the course ECON 33815 taught by Professor Giovannoni during the Spring '08 term at University of Texas at Austin.

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

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