Ch 14 - Regulation and antitrust laws

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

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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 the rules of income distribution (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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Ch 14 - Regulation and antitrust laws - Ch. 14: Ch....

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