03 Government Involvement

03 Government Involvement - ~ BCOR 1010 ~ Introduction to...

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Unformatted text preview: ~ BCOR 1010 ~ Introduction to Business Section 100 Instructor: Beth Cross Office: Room 345E – CESR Suite, Koelbel Email: [email protected] Email: [email protected] Cell #: 303 956-6010 Office # 303 492-4463 Office Hours, Spring, 2009: Office Mon. 11:30a-1:00p, Wed. 10:30a-12:00n Wed. and by appointment and 1 Competitiveness of Markets “Atomistic” or “Perfect” Competition (“Pure”) (“Pure”) Atomistic” – Infinite number of buyers and sellers Monopolistic Competition Monopolistic – Many sellers… some differentiation… – Starbursts, Skittles, Gummy Bears, etc… Starbursts, Oligopoly Oligopoly – Few sellers (barriers to entry) – Airplane Manufacturers, Coke/Pepsi, Navteq/Tele-Atlas Monopoly – One seller – Electricity, Water, Natural Gas, Cable Electricity, 2 Economic Indicators Indicate the health and trend/direction Indicate of an economy of – Gross Domestic Product (GDP) – Productivity – Unemployment Rate – Inflation Rate 3 Gross Domestic Product (GDP) Measures the sum of all goods and services Measures produced in a country in a year produced – Includes production of Honda cars in Tennessee – Does not include production of Ford cars in China GDP Trends – – – Growth Recession Depression 4 Productivity Output per person per hour What affects productivity? 5 Productivity Output per person per hour What affects productivity? – Fertilizers – Machinery – Education – Automation – Information Systems / Computers – Competition 6 Unemployment Rate Measures the percentage of the Measures population, age 16 and over, who are age who actively looking for work but cannot find it actively – Frictional – Cyclical – Structural What is the current US unemployment rate? 7 Inflation Rate Inflation is the occurrence of widespread price increases throughout an economic system (too much money chasing same amt of goods) ‘Basket’ of ~400 goods/services Tracked monthly – Measured by the Consumer Price Index (CPI) – Fed works to control inflation Deflation… Deflation… 8 Inflation Rate US = 2% - 3% per year Zimbabwe = 3700% (early 2007) – Hyperinflation – Wages do not adjust – Can’t hold currency Fed works to control inflation (U.S.) by Fed manipulating the supply of money manipulating 9 The Free Market Efficient Rewards innovation Freedom of choice Generally Fair However . . . 10 10 PART ONE: THE CONTEXT OF PART MODERN BUSINESS MODERN B. The Role of the Government What does our government do? 11 11 The Role of Government Agriculture Commerce Defense Education Energy Health and Human Health Services Services Homeland Security Housing and Urban Housing Development Development Interior Labor State Transportation Treasury Veterans Affairs Attorney General Environmental Environmental Protection Agency Protection Drug Control Policy 12 12 THE CONTEXT OF MODERN THE BUSINESS BUSINESS B. The Role of the Government Channeling Markets Along Competitive Lines Equality versus Efficiency Market Failures: Externalities and Public Goods 13 13 Anticompetitive Markets Anticompetitive Behavior – Collusion Anti-Trust Activities - Mergers Regulation of Natural Monopolies 14 14 Collusion Sotheby’s & Christie’s Auction Houses – $4B auction market – Duopoly In 2000, class action suit AND additional In government fines of $512M for price-fixing government 15 15 Anti-trust - Mergers Whole Foods + Wild Oats = ? "We brought this challenge because the "We evidence before us showed that the merger would most likely result in higher prices and reduced choices for consumers who shop at premium natural and organic supermarkets" supermarkets" Jeffrey Schmidt- FTC Director 16 16 Natural Monopolies When a single firm can best serve society – Subway Transportation – Water – Telecom? Government Regulates 17 17 Equality vs. Efficiency The Basic “Trade-Off” Insulin, for example What Constitutes “Fairness”? Where do we draw the line? Where 18 18 Arthur Okun Efficiency vs. Equality/Fairness Egalitarian ideals in politics/society… but Egalitarian inequality in economic system inequality The right to compete vs. the right to succeed Rights/entitlements which are free, universal, Rights/entitlements nontransferable nontransferable 19 19 Income Redistribution Tax Burden By Adjusted Gross Income (AGI) – – – – – – Top 1% Top 5% Top 10% Top 25% Top 50% Bottom 50% 36.89% 57.13% 68.19% 84.86% 96.70% 3.30% Source: Internal Revenue Service 20 20 Equality vs. Efficiency Rights (universal entitlements) – Votes – Equal Justice Before the Law – Free Speech, Religion, Etc. – Procreation – Emigration – Immunity From Enslavement – To Have Public Services – Minimum Decent Standard of Living 21 21 Equality vs. Efficiency Reasons for these Rights: Reasons – Liberty – Pluralism – Humanism 22 22 Equality vs. Efficiency Where do we draw the line? 23 23 Stents Coronary Heart Disease – – – – #1 Killer Genetics Not enough exercise Too many Too cheeseburgers cheeseburgers 24 24 Boston Scientific Stents What happened? What How would the market solve this market problem? problem? Why don’t we let the market solve it? 25 25 Will continue on Will Monday, 1/26/09 Monday, 26 26 Market Failures Market (Inefficient Outcomes of Free Market) (Inefficient Externalities are over-produced Public goods are under-produced The market may fail to allocate or The account for the total costs and benefits of a product of 27 27 Externalities Costs borne by unrelated third Costs parties… parties …external costs – Pollution – Traffic congestion – Resource Depletion Usually negative to society Usually Over-produced in a Free Market Over-produced (Can also be positive) (Can – Bee pollen 28 28 Public Goods Social benefits are greater than private Social benefits benefits Public Parks Street Lights Clean Air Lighthouses Police/Fire Protection Health Facilities Defense Under-produced in a Free Market 29 29 Social Costs Social costs = Social private costs + externalities externalities ALL the costs… 30 30 Social Costs What would happen if companies What included social costs when they priced social their goods? their – Automobiles (Fuel efficiency) – Cleaning Products (Environmental impact) – Bullets (Social harm) – Sexual Advertising (Teen pregnancy) Sexual 31 31 Case: Maytag Maytag - Newton, IA – Population = 15,500 – 1-in-5 works for Maytag Complete case Q&As Consider – – – – – – – The situation Who are the Stakeholders? Who gains, who loses? Social Costs Does the free market work? What are Maytag’s responsibilities? Community’s/Government’s responsibilities? Community’s/Government’s 32 32 ...
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