A MANAGER’S GUIDE TO GOVERNMENT IN THE MARKET PLACE
A MANAGER’S GUIDE TO GOVERNMENT IN THE MARKET PLACE
TABLE OF CONTENTS
I. INTRODUCTION
II. MARKET FAILURE
A. MARKET POWER
B. EXTERNALITIES
C. PUBLIC GOODS
D. INCOMPLETE INFORMATION
III. RENT SEEKING
IV. GOVERNMENT POLICY
A. QUOTAS
B. TARIFFS
V. CONCLUSION
I. INTRODUCTION
According to Mr. Michael Bay, author of the Book, “Managerial Economics and Business Strategy”, they have treated the market as a place where firms and consumers come together to trade goods and services with no intervention from government. But as you are aware, rules and regulations that are passed and enforced by government enter into almost every decision firms and consumers make. As a manager, it is important to understand the regulations passed by government, why such regulations have been passed, and how they affect optimal managerial decisions. We will begin by examining four reasons why free markets may fail to provide the socially efficient quantities of goods: (1) market power, (2) externalities, (3) public goods, and (4) incomplete information. The book analysis includes an overview of government policies designed to alleviate these “market failures” and an explanation of how the policies affect managerial decisions. The power of politicians to institute policies that affect the allocation of resources in markets provides those adversely affected with an incentive to engage in lobbying activities. The book will illustrate the underlying reasons for these types of rent-seeking activities. The book will examine how these activities can lead politicians to impose restrictions such as quotas and tariffs in markets affected by international trade.
LEARNING OBJECTIVES
• Identify four sources of market failure
• Explain why market power reduces social welfare, and identify two types of government policies aimed at reducing deadweight loss.
• Show why externalities can lead competitive markets to provide socially inefficient
TABLE OF CONTENTS
I. INTRODUCTION
II. MARKET FAILURE
A. MARKET POWER
B. EXTERNALITIES
C. PUBLIC GOODS
D. INCOMPLETE INFORMATION
III. RENT SEEKING
IV. GOVERNMENT POLICY
A. QUOTAS
B. TARIFFS
V. CONCLUSION
I. INTRODUCTION
According to Mr. Michael Bay, author of the Book, “Managerial Economics and Business Strategy”, they have treated the market as a place where firms and consumers come together to trade goods and services with no intervention from government. But as you are aware, rules and regulations that are passed and enforced by government enter into almost every decision firms and consumers make. As a manager, it is important to understand the regulations passed by government, why such regulations have been passed, and how they affect optimal managerial decisions. We will begin by examining four reasons why free markets may fail to provide the socially efficient quantities of goods: (1) market power, (2) externalities, (3) public goods, and (4) incomplete information. The book analysis includes an overview of government policies designed to alleviate these “market failures” and an explanation of how the policies affect managerial decisions. The power of politicians to institute policies that affect the allocation of resources in markets provides those adversely affected with an incentive to engage in lobbying activities. The book will illustrate the underlying reasons for these types of rent-seeking activities. The book will examine how these activities can lead politicians to impose restrictions such as quotas and tariffs in markets affected by international trade.
LEARNING OBJECTIVES
• Identify four sources of market failure
• Explain why market power reduces social welfare, and identify two types of government policies aimed at reducing deadweight loss.
• Show why externalities can lead competitive markets to provide socially inefficient