Roles of the Government & Monopolies

1. Roles of the Government & Monopolies Ch. 23, Section 1

2. Roles of the Government 1. Provide Goods & Services • Private goods • Exclusion Principle – a person is excluded from an item’s consumption unless he/she pays for it • Mostly businesses provide private goods • Examples • Public goods • Non-Exclusion Principle – no one is excluded from a good or service whether or not they pay • The government provides public goods • Examples

3. Private or Public? Public Private Public – If you go to a park Private – Shoot them off yourself Private Public Private Public Public Public Private

4. What was the first Labor Union in the US? • CIO • AFL • Knights of Labor • NFL

5. What is it called when a worker is not required to join union, but must pay dues? • Closed Shop • Open Shop • Modified Shop • Agency Shop

6. Roles of the Government 2. Handle Externalities • Externality – unintended side effect of an action • Public goods provide positive externalities because everyone benefits from them • Promotes positive externalities • Examples • Prevents negative externalities • Examples

7. Positive or Negative? • Bee Keepers next to a farm field • Positive. Why? • Ryan burning tires for the scrap metal • Negative. Why? • Company that pollutes the local stream • Negative. Why? • Over-harvesting of the fish population. • Negative. Why? • Danny buys a brand new video game. • Positive. Why? • Storing nuclear waste from the power plants. • Negative. Why? • Mrs. Smith planting a flower garden. • Positive. Why? • Taylor finds the cure for AIDS. • Positive. Why? • Mr. Cleland buys a home. • Positive. Why?

8. Roles of the Government 3. Regulate Market Activities • By regulations, the government reduces negative externalities • FTC – Federal Trade Commission – regulates truth in advertising • Example • FDA – Food & Drug Administration – enforces purity, effectiveness and labeling of food, drugs & cosmetics • CPSC – Consumer Product Safety Commission – recalls unsafe products • Recall – company pulls product or changes it • Example – Peanut recall, Chinese lead based toys • Pg. 632 for other regulatory agencies

9. What is a worker willing to work on company terms and cross picket lines? • Booger • Scar • Scab • Earwax

10. Roles of the Government 4. Ensures Competition • Competition is fundamental to a market economy • Exists if different businesses produce similar products • Monopoly – One group controls the market • Anti-trust laws – intended to control monopoly power & promote competition • Sherman Anti-trust Act – 1890 • Theodore Roosevelt – the “Trust-Buster” – Northern Securities • AT&T – Ma-Bell • Mergers – combination of two or more companies to form a single business • Government will stop if competition will be decreased • Horizontal Merger – Companies in the same business • Vertical Merger – Company joins with one it buys from • Conglomerate – Buying of un-related businesses • Example: GE (power plants, light bulbs, etc); United Technologies

11. Trust Buster • Robber Barons • Rockefeller (Standard Oil), Carnegie (Steel), Vanderbilt (Railroads), and Morgan (banking) • Others include: Astor, Gould, Hershey, Spreckles • Richest of All-Time? • Teddy as Trust Buster • Sherman Anti-Trust Act

12. Vertical or Horizontal? • Microsoft and Yahoo • Horizontal • Paper Company and Saw Mill • Vertical • Tostitos and Corn Fields • Vertical • Microsoft and Intel Processors • Vertical • Pepsi and Dr. Pepper • Horizontal

13. Perfect Competition • Large markets – requires a large amount of buyers & sellers • Similar products • Easy Entry & Exit • Information obtainable for Buyers • No control over price – Market price is the equilibrium price (decided by supply & demand)

14. Imperfect Competition • Imperfect Competition • One group can affect price • Monopoly – one group controls all of the market • Single seller • No substitutes • No easy entry • Controls the market price – suppliers can raise prices without losing business

15. Types of Monopolies • Natural: Control of resources – the government allows these but regulates them • Example: Water Company • Geographic: control of a location • Example: Dick’s only Sports store in area • Technological: Patent owned on technology • Government: created by the government. – Illegal to enter • Example: Postal Service • Cartel: International form of monopoly • Example: OPEC

16. Barriers to Entry • Government regulations: Technological or Government or regulations are too expensive • Cost of getting started: Large amounts of capital are needed • Ownership of Raw Materials: Companies control materials & do not sell to competitors

17. Oligopoly • Domination of a few businesses in competition • Barriers to entry • Identical or slightly different products • Some control of price

18. Oligopoly Examples • Movie Studios • Columbia, 20th Century Fox, Warner Bros., Paramount, Universal, and MGM • Television • Disney/ABC, CBS Corp., NBC Universal, Time Warner, and News Corporation • Food Processing • Kraft Foods, PepsiCo, and Nestle • Telecommunications • AT&T, Verizon, Sprint, and T-Mobile