Price Controls in Competitive
Definition and motivation.
Price controls are laws that set the
market price or put limits on it.
A price floor sets a minimum price.
1. Kinds of taxes.
2. Effects of a transactions tax.
Buyers and sellers prices.
3. Elasticity and taxes.
4. Progressivity and regressivity.
Major transactions ta
U.S. Government Debt
Structure of a Bond
One year T-bill.
Prices and yields.
Y ields and risk.
Other determinants of yield.
Typical Structure of a
Private or Government Bond
A bond is a (tradeable) promise b
Market Failure: Public Goods
1. The market underprovides public goods.
a. Nonrival goods.
b. Nonexclusive goods.
2. How government can boost provision.
Public goods is a term that economists
use for two separate categories of
Market Power and Inefficiency
The monopoly price.
Inefficiency from market power.
Mergers and antitrust.
Cartels, collusion, and antitrust.
Price regulation and natural monopoly.
The Monopoly Price
If the sellers in a comp
Efficiency of Competitive Markets
1. Efficiency of equilibrium in a single market.
a. Allocative efficiency.
b. Technical e ffic ienc y.
c . Distributive e ffic iency .
2. O ve ralle ffic ie nc y o fac o m pe titive m arke t
e c ono m y .
Surplus in a Com
Basic Roles of Government
1. Reasons for government intervention.
2. Efficiency/fairness tradeoff.
3. Problems with government intervention.
Justifications for Government
1) Enforce the rules of the market system.
2) Correct inefficiencies.
Drug Policy & Elasticity
Policies curtailing use of drugs.
Definition of elasticity.
Determinants of demand elasticity.
Impact of elasticity.
Rationale for Curtailing Drug Use
Use (especially chronic use) of some
drugs has negative external ef
Antitrust Law: reduce market power by increasing competition
1. government blocks mergers
2. price fixing is illegal
3. increasing market power through unreasonable business practices is illegal (ex. Tying,
Tying: when someone buys a pr
Maria A. Silva
Jhael De Alba
Founded in 1971 by Frederick W. Smith.
FedEx reached its maturing stage.
First US company to reach $1 billion in
2. Allocative inefficiency from
3. Taxing a negative externality.
4. Positive externalities.
An externality occurs when an economic
activity (e.g., consumption or production)
has a direct impact on