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

2. 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

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

4. What was the first Labor Union in the US? 1. 1. CIO 2. 2. AFL 3. 3. Knights of Labor 4. 4. NFL

5. What is it called when a worker is not required to join union, but must pay dues? 1. 1. Closed Shop 2. 2. Open Shop 3. 3. Modified Shop 4. 4. Agency Shop

6. 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

7. 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?

8. 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

9. What is a worker willing to work on company terms and cross picket lines? 1. 1. Booger 2. 2. Scar 3. 3. Scab 4. 4. Earwax

10. 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

11. 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

12. 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

13. 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)

14. 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

15. 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

16. 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

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

18. 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