Roles of the Government Roles of the Government & Monopolies& Monopolies

Ch. 23, Section 1Ch. 23, Section 1

Roles of the GovernmentRoles of the Government1. 1. Provide Goods & ServicesProvide Goods & Services Private goods Private goods

Exclusion Principle – a person is excluded from Exclusion Principle – a person is excluded from an item’s consumption unless he/she pays for an item’s consumption unless he/she pays for itit

Mostly businesses provide private goodsMostly businesses provide private goods ExamplesExamples

Public goodsPublic goods Non-Exclusion Principle – no one is excluded Non-Exclusion Principle – no one is excluded

from a good or service whether or not they from a good or service whether or not they paypay

The government provides public goodsThe government provides public goods ExamplesExamples

Private or Public?Private or Public?

Private

Private

PrivatePublic Public

Public

Public

Public – If you go to a parkPrivate – Shoot them off yourself

Public

Private

What was the first Labor Union What was the first Labor Union in the US?in the US?

1. CIO2. AFL3. Knights of Labor4. NFL

What is it called when a worker is What is it called when a worker is not required to join union, but must not required to join union, but must

pay dues?pay dues? 1. Closed Shop2. Open Shop3. Modified Shop4. Agency Shop

Roles of the GovernmentRoles of the Government

2. 2. Handle ExternalitiesHandle Externalities Externality – unintended side Externality – unintended side

effect of an actioneffect of an action Public goods provide positive Public goods provide positive

externalities because everyone externalities because everyone benefits from them benefits from them

Promotes positive externalitiesPromotes positive externalities• ExamplesExamples

Prevents negative externalitiesPrevents negative externalities• ExamplesExamples

Positive or Negative?Positive or Negative? Bee Keepers next to a farm fieldBee Keepers next to a farm field

• Positive. Why?Positive. Why? Ryan burning tires for the scrap metalRyan burning tires for the scrap metal

• Negative. Why?Negative. Why? Company that pollutes the local stream Company that pollutes the local stream

• Negative. Why?Negative. Why? Over-harvesting of the fish population. Over-harvesting of the fish population.

• Negative. Why?Negative. Why? Danny buys a brand new video game. Danny buys a brand new video game.

• Positive. Why?Positive. Why? Storing nuclear waste from the power plants.Storing nuclear waste from the power plants.

• Negative. Why?Negative. Why? Mrs. Smith planting a flower garden.Mrs. Smith planting a flower garden.

• Positive. Why?Positive. Why? Taylor finds the cure for AIDS. Taylor finds the cure for AIDS.

• Positive. Why?Positive. Why? Mr. Cleland buys a home.Mr. Cleland buys a home.

• Positive. Why?Positive. Why?

Roles of the GovernmentRoles of the Government3. Regulate Market Activities3. Regulate Market Activities By regulations, the government reduces By regulations, the government reduces

negative externalitiesnegative externalities FTC – Federal Trade Commission – regulates FTC – Federal Trade Commission – regulates

truth in advertisingtruth in advertising• ExampleExample

FDA – Food & Drug Administration – FDA – Food & Drug Administration – enforces purity, effectiveness and labeling enforces purity, effectiveness and labeling of food, drugs & cosmeticsof food, drugs & cosmetics

CPSC – Consumer Product Safety CPSC – Consumer Product Safety Commission – recalls unsafe productsCommission – recalls unsafe products• Recall – company pulls product or changes itRecall – company pulls product or changes it• Example – Peanut recall, Chinese lead based toysExample – Peanut recall, Chinese lead based toys

Pg. 632 for other regulatory agenciesPg. 632 for other regulatory agencies

What is a worker willing to work What is a worker willing to work on company terms and cross on company terms and cross

picket lines?picket lines?1. Booger2. Scar3. Scab4. Earwax

Roles of the GovernmentRoles of the Government4. 4. Ensures CompetitionEnsures Competition Competition is fundamental to a market economyCompetition is fundamental to a market economy Exists if different businesses produce similar Exists if different businesses produce similar

productsproducts Monopoly – One group controls the marketMonopoly – One group controls the market Anti-trust laws – intended to control monopoly power Anti-trust laws – intended to control monopoly power

& promote competition& promote competition Sherman Anti-trust Act – 1890Sherman Anti-trust Act – 1890 Theodore Roosevelt – the “Trust-Buster” – Northern Theodore Roosevelt – the “Trust-Buster” – Northern

SecuritiesSecurities AT&T – Ma-BellAT&T – Ma-Bell Mergers – combination of two or more companies to Mergers – combination of two or more companies to

form a single business form a single business Government will stop if competition will be decreasedGovernment will stop if competition will be decreased Horizontal Merger – Companies in the same businessHorizontal Merger – Companies in the same business Vertical Merger – Company joins with one it buys fromVertical Merger – Company joins with one it buys from Conglomerate – Buying of un-related businessesConglomerate – Buying of un-related businesses

• Example: Example: GE (power plants, light bulbs, etc); United Technologies

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

Vertical or Horizontal?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

Perfect CompetitionPerfect Competition Large markets – requires a large Large markets – requires a large

amount of buyers & sellersamount of buyers & sellers Similar productsSimilar products Easy Entry & ExitEasy Entry & Exit Information obtainable for Information obtainable for

BuyersBuyers No control over price – Market No control over price – Market

price is the equilibrium price price is the equilibrium price (decided by supply & demand)(decided by supply & demand)

Imperfect CompetitionImperfect Competition Imperfect CompetitionImperfect Competition

• One group can affect priceOne group can affect price Monopoly – one group controls Monopoly – one group controls

all of the marketall of the market• Single sellerSingle seller• No substitutesNo substitutes• No easy entryNo easy entry• Controls the market price – Controls the market price –

suppliers can raise prices without suppliers can raise prices without losing businesslosing business

Types of MonopoliesTypes of Monopolies Natural: Control of resources – the Natural: Control of resources – the

government allows these but government allows these but regulates themregulates them• Example: Water CompanyExample: Water Company

Geographic: control of a locationGeographic: control of a location• Example: Dick’s only Sports store in Example: Dick’s only Sports store in

areaarea Technological: Patent owned on Technological: Patent owned on

technologytechnology Government: created by the Government: created by the

government. – Illegal to entergovernment. – Illegal to enter• Example: Postal ServiceExample: Postal Service

Cartel: International form of Cartel: International form of monopolymonopoly• Example: OPECExample: OPEC

Barriers to EntryBarriers to Entry Government regulations: Government regulations:

Technological or Government or Technological or Government or regulations are too expensiveregulations are too expensive

Cost of getting started: Large Cost of getting started: Large amounts of capital are neededamounts of capital are needed

Ownership of Raw Materials: Ownership of Raw Materials: Companies control materials & Companies control materials & do not sell to competitorsdo not sell to competitors

OligopolyOligopoly Domination of a few businesses Domination of a few businesses

in competitionin competition Barriers to entryBarriers to entry Identical or slightly different Identical or slightly different

productsproducts Some control of priceSome control of price

Oligopoly ExamplesOligopoly Examples Movie StudiosMovie Studios

• Columbia, 20Columbia, 20thth Century Fox, Warner Century Fox, Warner Bros., Paramount, Universal, and MGMBros., Paramount, Universal, and MGM

TelevisionTelevision• Disney/ABC, CBS Corp., NBC Universal, Disney/ABC, CBS Corp., NBC Universal,

Time Warner, and News CorporationTime Warner, and News Corporation Food ProcessingFood Processing

• Kraft Foods, PepsiCo, and NestleKraft Foods, PepsiCo, and Nestle TelecommunicationsTelecommunications

• AT&T, Verizon, Sprint, and T-MobileAT&T, Verizon, Sprint, and T-Mobile