Download - Social and Economic Regulations
Group #5: Jessica Okolotkiewicz
Social and Economic Regulations
Group #5: Ljaz AkramCynthia AponteAisha MamaneJessica OkolotkiewiczRichard Torchon
Prof. Kone: Microeconomics
Group #5: Aisha Mamane
What is Social Regulation?
Regulation consists of rules identifying permissible and impermissible activity on the part of individuals, firms, or government agencies.
Social Regulations are aimed at restricting behaviors that directly threaten public health, safety welfare or well being.
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Energy and Environment
-EPA (Environmental Protection Agency) Health and Safety
-OSHA ( Occupational Safety and Health Administration)
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Product & Labor Market
Product Market CPSC (Consumer Product Safety Commission) - Recalls
- Labels contents Labor Market EEOC (Equal Employment Opportunity Commission) - Investigate complaints
Group #5: Jessica Okolotkiewicz
What is Economic Regulation?
The prescribing of prices and output levels for entire industries. Natural Monopolies
Railways Telecommunications Utilities Mail Delivery
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Natural Monopolies
“A natural monopoly exists when economies of scale make it efficient for a single firm to supply the entire market.”
LEGENDLRATC = Long-run average total costATC = Average total cost
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Anti-Trust Laws
Government policies and programs designed to control the growth of monopoly and enhance competition.
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The Fair Rate of Return Regulation is used to make price and
supply much like what a perfectly competitive industry would provide.
– At Pm too little output and too much profit for a firm is yielded.
– At Pr the company produces Qr but is subject to make a loss because the demand lies below the average total cost.
– Regulation provides a cost of Pf which is set at a zero economic profit, where demand and average total cost intersect.
LEGEND ATC = Long-run average total cost D = Demand MC = Long-run marginal cost MR = Marginal revenue
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Problems with Regulation
Price is set at a percentage of average cost.
Creates Negative Incentives
Increase costs
Run inefficiently
Acquire excess capacity
Money is wasted in order to increase rates to increase profits.
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What is Deregulation?
The government removes, reduces, or simplifies restrictions on businesses.
Simpler regulations lead to more competition, which increases productivity.
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Airline Deregulation Act of 1978
The main purpose of the act was to remove government control from commercial aviation and expose the passenger airline industry to market forces.
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Benefits of Deregulation
The airline industry expanded and they were able to attract travelers with discounts, more flights, and lower rates.
Trucking companies were able to set their own rates, routes, and carry more freight.
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Effects of Deregulated Industries
Many airlines and trucking firms became bankrupt due to the increased competition.
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Airlines Affected by the Deregulation Act of 1978
Eastern Airlines Pan Am TWA Continental
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Privatization
Occurs when a government-run business is transferred to a privately owned business.
Many private firms are providing garbage services, water services, and road building maintenance. These are contracted out (privatized) by the city or state.
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Regulation and Deregulationin other countries
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Nationalization
Definition: Government takes over and operates an industry.
It was preferred rather than regulation as a solution to natural monopoly in many regions in the world.
Issue: Compensation from the government to the private
company being bought out.
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Privatization
Definition: transfer of ownership from the public sector to the private sector.
Three types:1. Wholesale privatization – entire publicly owned firm
is transferred to private ownership.2. Contracting out – specific aspect of a government
operation is carried out by private firm.3. Auctioning – the rights to operate a government
enterprise go to the highest private-sector bidder
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Since 1980, more than 80 countries have launched efforts to privatize their state-owned-enterprises (SOE).
since 1980, more than 7000 SOEs have been privatized worldwide.
Privatization (cont.)
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Privatization (cont.)
Issue: Pro-privatization believes that private markets
actors can be more efficient due to free market competition.
Anti-privatization argue that that governments ensure the efficiency of their enterprises in order to gain potential voters.
Group #5: Ijaz Akram
International Regulations
GATT and the WTO
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The General Agreement on Tariff and Trade ( GATT)
The World Trade Organization (WTO)
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The GATT
The first global trade agreement called GATT. In April 1947, delegates from the United states, Asia, Europe and Latin America traveled to Geneva, Switzerland. Aware of the effects of trade restrictions on economics health that had been experienced during the Great Depression.
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The WTO
Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations (1986–94) Membership: 150 countries (since 11 January 2007) Budget: 175 million Swiss francs for 2006 Secretariat staff: 635 Head: Pascal Lamy (Director-General)
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Functions
Administering WTO trade agreements Forum for trade negotiations Handling trade disputes
http://www.wto.org/