Economics Chapter 7

Chapter 7 Section 1:  What is Perfect Competition?

  • The Characteristics of Perfect Competition
    • Key concepts
      • Economists classify markets based on how competitive they are.
        • For example:  When you buy new clothes, you probably shop around for the best deal. But when you buy milk, you know that a gallon will be about the same price no matter where you shop.  The market for clothes has a different level of competition then the market for milk.
      • Market Structure:  an economic model of competition among businesses in the same industry.
        • Ex. Clothes brand vs. Clothes brand
      • Perfect Competition:  is the ideal model of a market economy.
        • It is useful as a model, but real markets are NEVER perfect.
        • Economists can assess how competitive a market is by determining where it falls short of perfect competition.
      •  

 

Independent buyers and sellers

Number of buyers and sellers

Market Price = Equilibrium price

 

 

 

Perfect Competition

Standardized product

Well-informed buyers and sellers

Freedom to enter and exit markets

 

 

 

 

 

 


 

  • The five characteristics of perfect competition:
    • Many buyers and sellers
    • Why are a large number of buyers and sellers necessary for perfect competition?
      • No one seller or buyer has control over price.
      • A large number of buyers and sellers is necessary for perfect competition so that no one buyer or seller has the power to control the price in the market.
      • When there are many sellers, buyers can choose to buy from a different producer if one tries to raise prices above the market level.
      • Example:  Raspberries
        • Many farmers grow raspberries to sell, and charge about the same price.
        • If one farmer tries to charge more than the market price for raspberries, consumers will probably choose to buy from another farmer.
        • Because there are many buyers (demand is high) the producers know they can sell at market price.
          • Lack of demand will not cause them to lower prices.
    • What does it mean if something is standardized?
    • Standardized Product:  One that consumers see as identical regardless of the producer.
      • All products are essentially the same.
      • In perfect competition, consumers consider one producer’s product essential the same product offered by another.
        • In other words the products are considered perfect substitutes.
      • Examples:
        • Wheat, eggs, milk, notebook paper, gold.
    • Freedom to Enter and Exit Markets
      • Buyers are free to enter and exit the market.
      • No government regulations or other restrictions prevent businesses or consumers from participating in the market.
      • Business or customers are not required to participate in the market.
    • In a perfectly competitive market, when do producers enter a market? When do they leave a market?
      • Producers are able to enter the market when it is profitable and leave the market when it becomes unprofitable.
      • Example:  Raspberries
        • If a farmer believes they can make a profit a market price they will grow raspberries, if they don’t they will grow some other crop.

 

  • Independent Buyers and Sellers
    • Buyers cannot join other buyers and sellers cannot join other sellers to influence prices.
  • Why is it important that buyers and sellers remain independent?
    • When buyers and sellers act independently, the interaction of supply and demand sets the equilibrium price.
    • Independent action means the market remains competitive.
  • Well-informed Buyers and Sellers
  • What does it mean to be a well-informed buyer or seller?
    • Both buyers and sellers are well-informed about market conditions
    • Buyers can do comparison shopping, and sellers can learn about what their competitors are charging.
  • Price taker:  a business that accepts the market price determined by supply and demand.
    • Only efficient producers make enough money to serve perfectly competitive markets.
  • What motivates producers to enter or exit a perfectly competitive market?
    • Whether or not they can make a profit.
  • Competition in the real word
    • Key concepts
      • In the real word, there are no perfectly competitive markets because real markets do not have all the characteristics of perfect competition.
      • Imperfect Competition
        • Occurs in markets that have few sellers or products that are not standardized.
    • Give 2 examples of competition in the real world.  Explain why these are examples of perfect competition.
    • Example of perfect competition: Corn
      • In the United States thousands of farmers grow corn.
      • Each famer contributes only a small percentage to the total crop.
      • No one farmer can control the price of corn, and all farmers accept the market price.
      • The farmers decide how much corn o produce to offer for sale at that price.
      • There are a large number of buyers for corn and because it is standardized (most corn in considered the same) consumers have no preference to who they will buy the corn from, and will only pay market price.
    • Example of perfect competition: Beef
      • The market for beef is close to perfect competition as well.
      • There are many cattle producers and little variation in a particular cut of beef from one producer to the next.
      • The wholesale buyer’s concern would be price.
      • Both buyers and sellers can easily determine the market price and producers sell all beef at that price.
      • Cattle sellers can adjust only their production (how much they are willing and able to provide.

 

Chapter 7 Section 2:  The Impact of Monopoly

  • Characteristics of a Monopoly
    • Key concepts
      • Perfect competition is the most competitive market structure.  The least competitive market structure is a monopoly.
      • Monopoly: occurs when there is only one seller of product that has no close substitutes.
        • Pure monopolies are as rare as perfect competition, but some businesses come close.
          • Cartel:  a group that acts together to set prices and limit output
            • Cartels can function as monopolies
      • A monopoly is the only seller of a product with no close substitutes. It is a price maker.
        • Price Maker:  a firm that does not have to consider competitors when setting the prices of its products.
        • Consumers must accept the seller’s price or choose not to buy the product.
      • Other firms may want to enter a market, but they often face a barrier to entry.
        • Barrier to Entry:  makes it hard for new businesses to enter a market.
          • Example:  Large size of business, government regulations, special resources or technology.
      • Example of monopoly:  De Beers Cartel
        • This company had almost a monopoly on the diamond marker for most of the 20th century.
        • They controlled 80% of the world’s uncut diamonds.
        • De Beers used its monopoly power to control the price of diamonds and created barriers of entry that kept other firms from competing.
    • What are the characteristics of a monopoly?
      • Only one seller: A single business controls the supply of a product that has no close substitutes.
        • Ex. De Beers once produced more than half of the world’s diamond supply and bought from smaller producers to resell.
          • In this way it controlled the market.
      • A restricted, regulated market:  Government regulations or other barriers to entry keep other firms out of the market.
        • Ex. De Beers worked with the South African government to ensure that any new diamond minds were required to sell their diamonds through De Beers
          • The company restricted access to the market for raw diamonds outside of South Africa.
          • By controlling the supply of diamonds, De Beers made it difficult for other producers to make a profit.
      • Control of prices:  Monopolies act as price makers because they sell products that have no close substitutes and they face no competition.
        • Monopolists can control prices because there are no close substitutes for their product and they have no competition.
        • Ex. When economic downturns reduced demand for diamonds, De Beers created artificial shortages by withholding diamonds from the market.
          • The reduced diamond supply allowed the cartel to continue charting a higher price.
  • Types of Monopolies
    • Key concepts
      • There are several reasons why monopolies exist, and not all monopolies are harmful to consumers.
      • There are 4 types of monopolies:
        • Natural
        • Government
        • Technological
        • Geographical
    • Natural Monopoly:  occurs when the costs of production are lowest with only one producer.
      • In some markets it would be inefficient to have more than one company competing for a consumers’ business.
      • Most public utilities fall into this category.
      • Ex. Water company
        • It pumps water from its source through a complex network of pipes to all the homes, businesses, and public facilities in the community.
        • It also monitors water quality for safety and removes and treats wastewater so that it may be recycled.
        • It would be a waste of community resources to have several companies developing separate, complex systems in order to compete for business.
      • A single supplier is more efficient due to the economies of scale.
        • Economies of scale:  occur when the average cost of production falls as the producer grows larger.
        • The more customers the water company serves, the more efficient its operation becomes, as its high fixed costs are shared between a number of buyers.
      • The government generally supports natural monopolies, but also regulates them to ensure they do not charge excessively high prices for their services.
        • Key concepts of natural monopolies:
          • Costs are more efficient with one supplier.
          • Economies of scale limit the number of firms.
          • Prices are subject to government regulation.
    • Government Monopoly:  exists when the government either owns and runs the business or authorizes only one producer.
      • Government-run businesses provide goods and services that either could not be provided by public firms, or that are not attractive to them because of insufficient profit opportunities.
      • Ex.  The postal service
        • The U.S. Postal Service, is one of the oldest government monopolies in the U.S.
        • It has the exclusive right to deliver first-class mail.
        • Originally only the government could provide this service in an efficient and cost-effective manner.
        • However, new services and new technologies have been chipping away at this monopoly, like private deliver companies.
          • Many people also send information via fax, e-mail, and text messages.
      • Key concepts of government monopoly:
        • Government runs the business or licensees one supplier.
        • Market entry limited by government control or regulation.
        • Prices determined by government regulation.
    • Technological Monopoly:  occurs when a firm controls a manufacturing method, invention, or type of technology.
      • Ex. Polaroid
        • In 1947 Edwin Land, founder of the Polaroid Corporation, invented the first instant camera.
        • Land’s camera used a special type of film that allowed each picture to develop automatically in about one minute.
        • Through a series of patents, Polaroid created a monopoly in the instant photography market.
        • Patent:  gives an inventor the exclusive property rights to that invention or process for a certain number of years.
          • The government supports technological monopolies through the issuing of patents.
          • Through patents, businesses are able to recover the costs that were involved in developing the invention or technology.
      • Technological monopolies last only as long as the patent, generally about 20 years – or until a new technology creates close substitutes.
        • Polaroid maintained its monopoly for so long by updating its patents before they expired.
        • However, as digital photography spread from cameras, to laptops, to cell phones, demand for Polaroid’s instant cameras shrank.
        • Polaroid stopped making instant cameras in 2007.
      • Key concepts of technological monopoly:
        • Results from ownership of an invention or technology.
        • Patents serve as barriers to entry.
        • Charges higher prices while the monopoly lasts.
    • Geographic Monopoly:  exists then there are no other producers in a certain region.
      • Ex. Professional Sports
        • One type of geographic monopoly in the United States is the professional sports team.
        • The major sports leagues require that teams be associated with a city or region and limit the number or teams in each league.
        • The leagues create a restricted market for professional sports.
        • Most cities and towns are not directly represented by a team, so many teams draw their fans from a large surrounding geographic region.
        • Because of their geographic monopolies, the owners of these teams are able to charge higher prices for tickets to games than if they faced competition.
        • They also have a market for merchandise with the team logo, colors, etc.
      • Ex. Isolation
        • A gas station in the middle of nowhere where the next closest station is 50 miles away.
        • Gas tends to be quite expensive when this happens.
      • Geographic monopolies are less common due to the internet.
      • Key concepts of geographic monopoly:
        • No competition in the local area.
        • Location or size of market has limited suppliers.
        • Charges higher prices due to lack of competition.
      • Chapter 7 Section 3:  Other Market Structures

        • Characteristics of Monopolistic Competition
          • Key concepts
            • Most markets in the real world fall somewhere between the models of perfect competition and monopoly.
              • Monopoly – Monopolistic Competition and Oligopoly – Perfect competition
            • Monopolistic Competition: occurs when many sellers offer similar, but not standardized products.
              • One of the most common market structures.
              • Example:  T-shirts with pictures and slogans.
                • The market is competitive because there are many buyers (you, your friends, and many other buyers) and many sellers (stores at the mall, online sales, sports teams, etc.)
                • The market is considered monopolistic because each seller has influence over a small segment of the market with products that are not exactly like those of their competitors.
                • Someone looking for a Packers shirt would not accept a Bears shirt as a substitute.
            • There are two distinguishing features of monopolistic competition.
              • Product differentiation.
              • Nonprice competition.
            • Product differentiation: the effort to distinguish a product from similar products.
              • Example: Batteries
                • Batteries are essentially similar, but battery companies will spend millions on advertising trying to convince consumers that their batteries last longer.
                  • The difference in battery-life between brands is usually minimal.
            • Nonprice competition:  occurs when producers use factors other than low price to try to convince customers to buy their products
              • They will use the following to try to convince customers to buy one product rather than another.
                • Style
                • Service
                • Advertising
                • Giveaways
              • Example:  McDonald’s
                • If you’ve ever eaten at McDonald’s to get the happy mean prize you’ve participated in nonprice competition.
          • Monopolistic competition has 4 major characteristics:
            • Many buyers for many sellers
            • Similar, but differentiated products
            • Limited lasting control over prices.
            • Freedom to enter or exit a market.
          • Many Sellers and Many Buyers
            • The number of sellers is usually smaller than in a perfectly competitive market, but sufficient to allow meaningful competition.
            • Sellers act independently in choosing what product to produce and how much to charge.
            • Example: Cheeseburger
              • When you want a cheeseburger you have many different restaurants to choose from.
              • Having this variety of restaurants to choose from also allows you to choose from a variety of cheeseburgers to choose from and the prices will be competitive.
              • No single seller has a large enough share of the market to significantly control supply or price
              • There are probably a few restaurants that make burgers that you really like and others with burgers you don’t like.
              • The restaurants that make your favorite burgers have a sort of monopoly on your businesses.
          • Similar, but Differentiated Products
            • Sellers in monopolistic competition gain their limited monopoly-like power by making a distinctive product or by convincing consumers that their product is different from their competition.
            • One key method of product differentiation is the use of brand names.
              • This encourages consumer loyalty by associating desirable qualities with a particular brand of hamburger.
              • They will often use advertising to inform their consumers about product differences and to persuade them to choose their offering.
            • Example Cheeseburger
              • Cheeseburger restaurants may advertise the quality of their ingredients or the way they cook their burgers.
              • They might use distinctive packaging or some special service like a money-back guarantee.
            • How do cheeseburger restaurants decide how to differentiate their products?
              • They conduct market research, the gathering and evaluation of information about consumer preferences for goods and services.
                • The results of market research help the restaurants differentiate their products and attract more customers.
          • Limited Control of Prices
            • Product differentiation gives producers limited control of price.
            • Example: Cheeseburgers
              • Cheeseburger restaurants charge different prices for their product depending on how they want to appeal to customers.
                • Some restaurants set their prices lower to appeal to parents of younger eaters or those on a tight budget.
                • Prices for name-brand products with better quality ingredients may be slightly higher.
                  • If consumers perceive the differences are important enough they will the extra price.
          • Freedom to Enter or Exit Market
            • There are generally no huge barriers to entry in monopolistically competitive markets.
            • Example: Cheeseburgers
              • It does not require a large number of capital to open a cheeseburger stand.
              • When firms earn a profit in the cheeseburger market, other firms will enter and increase competition.
              • Increased competition forces firms to continue to find ways to differentiate their products.
              • This competition can be intense for smaller businesses competing with much larger ones.
              • Some firms will not be able to compete and will take losses – signaling it is time to leave the market.
        • Characteristics of an Oligopoly
          • Key concepts
            • Oligopoly:  is a market structure in which only a few sellers offer a similar product.
              • This is less competitive than monopolistic competition.
            • In an oligopoly a few large firms have a large market share and dominate the market.
              • Market Share:  a company’s percent of total sales in a market.
                • Example: Movies
                  • If you see a movie in a theater, chance are the movie will have been made by one of just a few major studios.
                  • The theater was also probably part a theater chain.
                  • The market for film production and theaters are oligopolies.
            • There are few firms in an oligopoly because of high start-up costs.
              • Start-up Costs:  the expenses that a new business must pay to enter a market and begin selling to consumers.
                • Example: Movies
                  • Making a movie can be expensive, especially if you want to compete with major studios.
          • There are 4 characteristics to an Oligopoly:
            • Few Sellers and Many Buyers
            • Standardized or Differentiated Products
            • More Control of Prices
            • Little Freedom to Enter or Exit a Market
          • Few Sellers and Many Buyers
            • In an oligopoly, a few firms dominate an entire market.
            • There is not a single supplier (that would be a monopoly), but there are fewer firms which produce a large part of the total product in the market.
            • Economists consider and industry to be an oligopoly if the four largest firms control at least 40% of the market.
            • About half of the manufacturing industries in the U.S. are oligopolistic.
            • Example:  Breakfast cereal
              • The breakfast cereal industry in the U.S. is dominated by four firms that control about 80% of the market.
              • They offer many varieties of cereals, but there is less competition if each variety were produced by different manufacturers.
          • Standardized or Differentiated Products
            • An oligopolist may sell either standardized or differentiated products.
            • Standardized examples include markets for steel and aluminum (industrialized products)
              • They try to differentiate themselves based on brand name, service, or location.
            • Differentiated examples include cereals, soft drinks, and other consumer goods.
              • They market differentiated products using market strategies
          • More Control of Prices
            • Because there are few sellers in an oligopoly and each one has more control over product price.
            • Example: Breakfast Cereals
              • Each cereal manufacturer has a large enough share of the market that decisions it makes about supply and price affect the market as a whole.
              • Because of this, a seller is an oligopoly is not as independent as a seller in monopolistic competition.
                • A decision made by one seller may cause the other sellers to respond in some way.
                  • If one manufacturer lowers its prices, the others will probably lower prices rather than lose customers to competition.
                  • If a manufacturer raises prices the others may not follow suit and will hope customers will choose them instead.
          • Little Freedom to Enter or Exit a Market
            • Start-up costs for a new company in oligopolistic market can be extremely high.
            • It can be costly and difficult to enter a market where established brands.
            • Example: Breakfast Cereal
              • Most manufacturers have a deal with grocery stores to guarantee the best shelf space.
              • Existing manufactures also have economies of scale to help them keep expenses low.
                • Reminder economies of scale – the average cost of production falls as the producer grows larger.
        • Comparing Market Structures
          • Each of the four market structures has different benefits and problems.
          • Each type of market creates a different balance of power - namely, the power to influence prices- between producers and consumers.
          • Consumers get the most values in markets that approach perfect competition because prices are primarily set by supply and demand.
            • These markets do usually deal in standardize product so choice is limited.
          • In monopolistic competition, consumers continue to benefit from companies competing for their business.
            • Businesses can gain some control over prices, so they are more likely to earn profit.
          • In oligopolies, consumer choices may be more limited.
            • Business gain more control of price making it easier for them to make a profit.
            • The cost of doing business in the market can be high.
          • A market ruled by a monopoly is favorable to the business that holds the monopoly because it faces little or no competition.
            • Consumers have the least influence on price.
            • Consumers only decide on whether they are willing to by the product at the price that has been set.

        Chapter 7 Section 4:  Regulation and Deregulation Today

        • Promoting Competition
          • Key Concepts
            • The forces of the marketplace generally keep businesses competitive with one another and keep customers happy.
              • Sometimes the government will use regulation to promote competition and protect customers.
                • Regulation:  a set of rules or laws designed to control business behavior.
            • The most important laws that promote competition are called antitrust legislation.
              • Antitrust legislation:  defines monopolies and gives government the power to control them and break them up.
            • Trust: a group of firms combined in order to reduce competition in an industry.
              • Very similar to a cartel (a group that acts together to set prices and limit output)
            • To keep trusts from forming, the government regulates business mergers.
              • Merger: the joining of two firms to form a single firm.
          • Origins of Antitrust Legislation
            • During the late 1800s a few large trusts such as Standard Oil, dominated the oil, steel, and railroad industries in the United States.
            • The U.S. government became concerned that these combinations would use their power to control prices and output so they passed the Sherman Antitrust.
              • Sherman Antitrust Act:  gave the government power to control monopolies and regulate business practices that might reduce competition.
            • Why should the government push for antitrust laws?
              • If we look back at Standard Oil Company their mergers eliminated competitors.
              • Standard Oil gained control of about 90% of the oil industry giving them the ability to set production levels and prices.
                • The government actually took Standard Oil to court and used the Sherman Antitrust Act to break up the trust.
          • Antitrust Legislation Today
            • The U.S. government has used antitrust legislation to break up large companies that attempt to maintain their market power through restraint of competition.
            • The government may allow a large dominant firm to remain intact because it is the most efficient producer.
            • The government can also order the company to change its business practices to allow other firms to compete more easily.
            • When it comes to Antitrust Laws, the government can:
              • Break up large companies who hinder competition.
              • Allow a large efficient firm to remain intact.
              • Order a business to change its practices.
            • Who is responsible for enforcing antitrust legislation?
              • Federal Trade Commission (FTC)
              • Department of Justice.
            • Mergers
              • The government supports mergers that benefit consumers.
              • The government blocks mergers that lead to a few firms holding the power.
              • A merger that makes it more difficult for new firms to enter a market will also be looked upon in concern.
            • To determine whether the merger will increase the concentration in the market and decrease competition, the government considers the market share of the firms before and after a proposed merger.
              • Regulators look at whether the merger allows a firm to eliminate possible competitors.
                • If the analysis shows that merger will reduce competition and more than likely lead to higher prices for consumers the merger will be denied.
        • Ensuring a Level Playing Field
          • Key Concepts
            • The government tries to make sure businesses do not engage in practices that would reduce competition.
              • Remember competition allows the market economy to work effectively.
              • When businesses take steps that counteract the effects of competition, prices go up and supplies go down.
                • In the U.S., laws prohibit most of these practices.
                  • The FTC and Department of Justice enforce these laws.
          • Prohibiting Unfair Business Practices
            • Price fixing:  occurs when businesses agree to set prices for competing products.
              • Example:  CDs
                • In the 1990s, the five major music distributors began enforcing a “minimum advertised price” for CDs sold in the U.S.
                • As a result CD prices remained artificially high.
                • The FTC estimated that consumers paid $480 million more for CDs then they would have if prices had been established by market forces.
                • In 2000, the FTC reached an agreement with the distributors to end this anticompetitive practice.
            • Market allocation:  occurs when competing businesses divide a market amongst themselves.
              • By staying out of each other’s territory, the businesses develop limited monopoly power in their own territory so they can charge higher prices.
            • Predatory pricing:  occurs when businesses set prices below cost for a time to drive competitors out of the market.
              • Wal-Mart

         

         

         

         

         

         

         

        Wal-Mart Charged With Predatory Pricing

        By New Rules Staff on November 1, 2000

        In September, Wal-Mart was hit with three separate charges of predatory pricing. Government officials in Wisconsin and Germany accused the retailer of pricing goods below cost with an intent to drive competitors out of the market. In Oklahoma, Wal-Mart faces a private lawsuit alleging similar illegal pricing practices.

        The Wisconsin Department of Agriculture, Trade and Consumer Protection filed a complaint with an administrative law judge accusing the retailer of violating the state's antitrust law. The complaint says Wal-Mart sold butter, milk, laundry detergent, and other staple goods below cost in stores in Beloit, Oshkosh, Racine, Tomah, and West Bend. The company intended to force other stores out of business, gain a monopoly in local markets, and ultimately recoup its losses through higher prices.

        State officials filed the complaint after Wal-Mart failed to take corrective action following several warning letters sent as early as 1993. The administrative law judge will review the charges and recommend further action to the department's secretary. The complaint carries a total of 352 violations, each of which could incur a fine of $500.

        In Germany, Wal-Mart was charged with similar predatory tactics. The federal Cartel Office accused Wal-Mart and two other large supermarket chains of selling goods below cost and ordered the companies to raise prices immediately. Wal-Mart could face fines of DM1 million ($434,000) if it fails to comply.

        The items in question include about a dozen staple products like milk and vegetable oil. A common Wal-Mart strategy is to price such staples, known as "corner products," very low. Corner products are items for which consumers know the going price. By setting prices on these items very low, Wal-Mart creates an overall impression of having very low prices, when in fact much of its merchandise may not be such a good deal.

        German law prohibits below cost pricing, because of its impact on small businesses. In this case, authorities feared a price war among the country's three largest food retailers would decimate independent shops, ultimately leaving consumers with fewer options and higher prices. "The material benefit [of below cost pricing] to consumers is marginal and temporary, but the restriction of competition by placing unfair obstacles before medium-sized retailers is clear and lasting," said the Cartel Office.

        In Oklahoma, Crest Foods, a three-store supermarket chain, filed a predatory pricing suit against Wal-Mart. The suit contends that Wal-Mart sold goods below cost at its store in Edmond in order to force Crest Foods out of business. Wal-Mart employees—including on one occasion former chief executive David Glass himself—regularly visited the Crest store to monitor prices. According to the suit, Wal-Mart then targeted price cuts to undermine Crest Foods, often dipping well below its own costs to beat out its rival. Such tactics are illegal under two state laws, the Unfair Sales Act and the Antitrust Reform Act.

        Protecting Consumers

        • When the government becomes aware that a firm is engaged in behavior that is unfair to competitors or consumers, it may issues a cease and desist order.
          • Cease and Desist Order:  requires a firm to stop an unfair business practice.
        • Public disclosure: a policy that requires businesses to reveal product information.
          • This protects consumers and promotes competition by giving consumers the information they need to make informed buying decisions.
        • Consumer Protection Agencies
          • Besides enforcing laws the ensure competitive markets, the government protects consumers by regulating other aspects of business.

        Agency

        Created

        Purpose

        Food and Drug Administration (FDA)

        1906

        Protects consumers from unsafe foods, drugs, or cosmetics.

        Requires truth in labeling of these products.

        Federal Trade Commission (FTC)

        1914

        Enforces antitrust laws and monitors unfair business practices, including deceptive advertising.

        Federal Communication Commission (FCC)

        1934

        Regulates the communications industry, including radio, TV cable, and telephone services.

        Securities and Exchange Commission (SEC)

        1934

        Regulates the market for stocks and bonds to protect investors.

        Environmental Protection Agency (EPA)

        1970

        Protects human health by enforcing environmental laws regarding pollution and hazardous materials.

        Consumer Product Safety Commission (CPSC)

        1972

        Sets safety standards for thousands of types of consumer products; issues recalls for unsafe products.

         

        • Food and Drug Administration (FDA)
          • Protects consumers from unsafe foods, drugs, or cosmetics.
          • Requires truth in labeling of these products.
        • Federal Trade Commission (FTC)
          • Enforces antitrust laws and monitors unfair business practices, including deceptive advertising.
        • Federal Communication Commission (FCC)
          • Regulates the communications industry, including radio, TV cable, and telephone services.
        • Securities and Exchange Commission (SEC)
          • Regulates the market for stocks and bonds to protect investors.
        • Environmental Protection Agency (EPA)
          • Protects human health by enforcing environmental laws regarding pollution and hazardous materials
        • Consumer Product Safety Commission (CPSC).
          • Sets safety standards for thousands of types of consumer products; issues recalls for unsafe products.
        • Deregulating Industries
          • Key Concepts
            • As more industries came under a wider array of government regulations, a counter-movement came about.
            • Businesses and some economists argued that regulations were harming profits, and they lobbied for reduced regulation.
            • In the 1970s some deregulation occurred.
              • Deregulation:  reduces or removes government control of businesses.
            • Did deregulation work?
              • The results of deregulation are mixed.
              • In some cases, removing regulations helped both businesses and consumers.
              • In other cases lack of regulation has led to problems.
          • Example:  Deregulating the Airlines
            • The Airline Deregulation Act of 1978 removed all government control of airline routes and rates.
              • Only safety regulations remained in place.
              • Prior to 1978 there was limited competition, and airlines differentiated based on service rather than price.
            • As a result of deregulation, the industry expanded as new carriers entered the market.
              • Increased competition led to greater efficiency.
              • Economists estimate that prices fell 10 – 20%, falling most sharply on the most heavily traveled routes.
              • More people than ever, lured by lower prices, chose to travel by plane.
            • However, the quality of service declines as airplanes cut back on food and other perks to reduce costs.
              • Many travelers encountered crowded airports and it took time for local government to expand facilities to accommodate increased traffic.
            • The financial pressures led to a large number of bankruptcies among airline companies.
              • Employees faced layoffs, lower wages, and loss of pensions.