Chapter 7 section 3 The Role of Government

Key terms Trust Price discrimination Cease and desist order Public disclosure

The Role of the Government Government can step in when markets fail. Government can a protect the public from unreasonable risk of serious injury or death. CPSC- U.S. Consumer Product Safety Commission.

Antitrust Legislation Trusts- combinations of firms designed to restrict competition or control prices in a particular industry.

Maintain competition The government exercises its power to maintain competition within markets. Prohibiting market structures that are not competitive Regulating markets where full competition is not possible. Sherman Antitrust Act: to protect trade and commerce against unlawful restraint and monopoly.

Clayton Antitrust Act 1914: more power over monopolies Clayton Antitrust Act 1914: more power over monopolies. Outlawed price discrimination- the practice of selling the same product to different consumers at different prices if it substantially lessens competition. Federal Trade Commission Act: setting up the (FTC) Federal Trade Commission gave authority to issue cease and desist order. Cease and desist order- FTC ruling requiring a company to stop an unfair practice, such as price-fixing, that reduces or limits competition among firms.

Robinson Patman Act: companies could no longer offer special discounts to some customers while denying them to others.

Government Regulations Not all monopolies are bad. Local and state government regulate many monopolies, such as cable tv, and water and electric utilities. Government agencies help regulate See figure 7.4 page 187

Improve Economic Efficiency Providing public goods and promoting transparency can improve economic efficiency. Transparency- is a term used to indicate that information and actions are not hidden and instead are easily available for review. Public disclosure- the requirement that businesses reveal certain information to the public. EX: sell stocks have to disclose financial and operating information.

Provide Public Goods Roads and highways Museums Libraries Education All Make the economy more productive

Modified Free Enterprise Because the government is involved in certain aspects of our economy, it is a modified version of free enterprise. Economic efficiency promoted by government by supplying goods and promoting transparency. Today we have varying degree of government regulation.