Regulation and deregulation

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Regulation and deregulation

  1. 1. Regulation and Deregulation
  2. 2. Examples of Government Regulation/Involvement in Your Life:  Taking a shower: The water that flows from your showerhead has been analyzed by your local water department to be sure it is safe.  Brushing your teeth: A government agency assured that the ingredients in your toothpaste are safe and that it was packaged safely.  Driving: The traffic laws that allow you to get to school safely have been created and enforced by local government and police departments. Potholes in the road have been filled by a company hired by the government.  Listening to the radio: You can hear music clearly because a government agency assigns a separate frequency to each competing station.  Going to School: National, state, and local government regulate  Going to Work: Government agencies assure that your workplace and fund schools so we have an educated workforce. is safe and protect you from discrimination.
  3. 3. Government Intervention in Markets:  Regulation - government control of an industry  Control prices, output, standards  Deregulation - removal of government control  No rules, free market
  4. 4. Examples of Regulation  Economic Regulation  Federal Communications Commission (FCC)  Civil Aeronautics Board (CAB)  Social Regulation  Environmental Protection Agency (EPA)  Occupational Safety and Health Administration (OSHA)
  5. 5. Reasons for Regulation  Protects Firms: Costs of production (economies of scale) “Fair” profits  Protects Consumers: Necessary Safety Quality products/services will be available
  6. 6. Cost of Regulation In most cases regulation tends to RAISE prices and LOWER output! Why?
  7. 7. Commanding Battle for the  Disc  Heights: World Economy 1, Chapter 14: Deregulation Takes Off 7:29 http://www.pbs.org/wgbh/commandingheights/lo/story/ch_menu.html
  8. 8. Regulation of the Airline Industry  80’s: Economy was poor: high prices, high unemployment   Gov’t: What can we do to reverse this trend?? Airlines: Regulated since Great Depression   No new firms (no competition) CAB: regulatory agency Did not grant new routes  Kept prices high  Airlines    Freddy Laker: Cheaper alternative!   PanAm  Can’t compete with price Kahn: Assigned to investigate effectiveness of CAB     CAB closed Competition in industry Prices of air travel Demand
  9. 9. Deregulation  Purpose  Remove government regulations to increase competition, lower prices  Dilemma  Increase competition without social costs (ex: health and safety requirements)
  10. 10. General Effects of Deregulation  Lower prices  More competition= increase in output= more options  Market is free to compete

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