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.

Group #5: Aisha Mamane

Energy and Environment

-EPA (Environmental Protection Agency) Health and Safety

-OSHA ( Occupational Safety and Health Administration)

Group #5: Aisha Mamane

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

Group #5: Jessica Okolotkiewicz

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

Group #5: Jessica Okolotkiewicz

Anti-Trust Laws

Government policies and programs designed to control the growth of monopoly and enhance competition.

Group #5: Jessica Okolotkiewicz

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

Group #5: Jessica Okolotkiewicz

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.

Group #5: Cynthia Aponte

What is Deregulation?

The government removes, reduces, or simplifies restrictions on businesses.

Simpler regulations lead to more competition, which increases productivity.

Group #5: Cynthia Aponte

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.

Group #5: Cynthia Aponte

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.

Group #5: Cynthia Aponte

Effects of Deregulated Industries

Many airlines and trucking firms became bankrupt due to the increased competition.

Group #5: Cynthia Aponte

Airlines Affected by the Deregulation Act of 1978

Eastern Airlines Pan Am TWA Continental

Group #5: Cynthia Aponte

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.

Group #5: Richard Torchon

Regulation and Deregulationin other countries

Group #5: Richard Torchon

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.

Group #5: Richard Torchon

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

Group #5: Richard Torchon

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.)

Group #5: Richard Torchon

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

Group #5: Ijaz Akram

The General Agreement on Tariff and Trade ( GATT)

The World Trade Organization (WTO)

Group #5: Ijaz Akram

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.

Group #5: Ijaz Akram

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)

Group #5: Ijaz Akram

Functions

Administering WTO trade agreements Forum for trade negotiations Handling trade disputes

http://www.wto.org/