NOTE_Lecture_15_-_summary_of_mkt_structu

NOTE_Lecture_15_-_summary_of_mkt_structu - 10/1/2009...

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10/1/2009 1 Summary of market Objectives Summary of market structures Role of government, i.e., anti-trust policy Other types of market failure – Externalities: positive and negative – Public goods No. of sellers Product Price (P) Output (Q) Long-run economic profit Produc- tive efficiency Perfect competi- tion Many Identical Occurs at min ATC Occurs at min ATC Zero Yes Monopo- listic competi- tion Many Differen- tiated > min ATC Left of min ATC Zero No Oligopoly Few Identical or differen- tiated > min ATC Left of min ATC Positive No Monopoly One Unique > min ATC Left of min ATC Positive No
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10/1/2009 2 Market failure Definition of market failure: Market failure occurs when the market fails to lead to the socially optimal outcome (in terms of efficiency) Monopoly, monopolistic competition, and oligopoly markets are all examples of market failure (and of imperfect competition) because social welfare (= consumer surplus + producer surplus) is not maximized What can government do? Since perfect competition leads to greatest efficiency, the U.S. federal government has put in place regulations to promote competition and limit anti-competitive behavior. Anti-trust policy in the U.S. Refers to laws that restrict the formation of monopolies or monopoly-like power and regulates certain anti- competitive business behavior by firms Impetus comes largely from concern over fairness and equitability to American consumers , rather than concern over efficiency Three main pieces of legislation Sherman Act (1890) Clayton Act (1914) Federal Trade Commission Act (1914)
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10/1/2009 3 Sherman Act The political background During the 19 th century the federal government rarely intervened in the economy There were, however, two major forms of intervention, both of which were key issues in the events leading up to the Civil War High protective tariff that made imports more expensive and greatly aided Northern manufacturers. This forced the South to pay much higher prices for the foreign goods they needed The transcontinental railroad was built with tremendous
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NOTE_Lecture_15_-_summary_of_mkt_structu - 10/1/2009...

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