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

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

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

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

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

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 ExamplesExamples  Prevents negative externalities ExamplesExamples

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

Roles of the Government 3. Regulate Market Activities  By regulations, the government reduces negative externalities  FTC – Federal Trade Commission – regulates truth in advertising ExampleExample  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 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 agencies

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

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 TechnologiesExample: GE (power plants, light bulbs, etc); United TechnologiesGEUnited TechnologiesGEUnited Technologies

Trust Buster   Robber Barons 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?   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 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)

Imperfect Competition  Imperfect Competition One group can affect priceOne group can affect price  Monopoly – one group controls all of the market Single sellerSingle seller No substitutesNo substitutes No easy entryNo easy entry Controls the market price – suppliers can raise prices without losing businessControls the market price – suppliers can raise prices without losing business

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

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

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

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