Econ 461 Quiz 3 - certain industries, regulation through...

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1) In a perfectly competitive market no buyer or seller has market power. Some of the other characteristics of a perfectly competitive market are that there are no barriers to entry, and there are infinite buyers and sellers. Thus, while this may not be practical in the real world, in theory, because of the conditions of a perfectly competitive market, the laws of supply and demand will naturally always correct any anticompetitive firm behavior and the market will return to equilibrium. These characteristics of perfect competition make it ideal, from an economist’s perspective, for a model with no government intervention. 2) In economics, market power is the ability for one firm to control the market price for either a good or a service. A firm is thought to have market power if they are price makers. 3) In the phrase, “government produces regulation”, the actions by the government that constitute “regulation” can be numerous. These can include legal restrictions created by the government, self-regulation by
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Unformatted text preview: certain industries, regulation through social norms, and market regulation. No matter which regulation is used, all of these types of regulation bare some type of sanction if the regulation is broken. 4) In the industrial organization field of economics, the Structure-Conduct-Performance school of thought believes that an industrys performance is based on the conduct of its firms, which in turn is based on the structure of the industry. The structure of the industry can be thought of as the facts that determine how competitive the market is going to be, such as barriers to entry and the number of sellers and the number of buyers. However, the Chicago school of thought, when it comes to industrial organization, is that conventional Keynesian wisdom that strays from perfect competition, is anticompetitive behavior. This approach uses price theory, which shows how supply and demand affect price, in its economic analysis of industrial organization....
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