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One difficulty with government price regulation is what economists call regulatory capture    , in which the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow. When the airline industry was being regulated, for example, it suggested appointees to the regulatory board, sent lobbyists to argue with the board, provided most of the information on which the board made decisions, and offered well-paid jobs to at least some of the people leaving the board. In this situation, consumers can easily end up being not very well represented by the regulators. The result of regulatory capture is that government price regulation can often become a way for existing competitors to work together to reduce output, keep prices high, and limit competition.

The effects of deregulation

Deregulation, both of airlines and of other industries, has its negatives. The greater pressure of competition led to entry and exit. When firms went bankrupt or contracted substantially in size, they laid off workers who had to find other jobs. Market competition is, after all, a full-contact sport.

A number of major accounting scandals involving prominent corporations such as Enron, Tyco International, and WorldCom led to the Sarbanes-Oxley Act in 2002. Sarbanes-Oxley was designed to increase confidence in financial information provided by public corporations to protect investors from accounting fraud.

The Great Recession which began in late 2007 and which the U.S. economy is still struggling to recover from was caused at least in part by a global financial crisis, which began in the United States. The key component of the crisis was the creation and subsequent failure of several types of unregulated financial assets, such as collateralized mortgage obligations (CMOs, a type of mortgage-backed security), and credit default swaps (CDSs, insurance contracts on assets like CMOs that provided a payoff even if the holder of the CDS did not own the CMO). Many of these assets were rated very safe by private credit rating agencies such as Standard&Poors, Moody’s, and Fitch.

The collapse of the markets for these assets precipitated the financial crisis and led to the failure of Lehman Brothers, a major investment bank, numerous large commercial banks, such as Wachovia, and even the Federal National Mortgage Corporation (Fannie Mae), which had to be nationalized—that is, taken over by the federal government. One response to the financial crisis was the Dodd-Frank Act , which attempted major reforms of the financial system. The legislation’s purpose, as noted on dodd-frank.com is:

To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, [and] to protect consumers from abusive financial services practices. . .

We will explore the financial crisis and the Great Recession in more detail in the macroeconomic chapters of this book, but for now it should be clear that many Americans have grown disenchanted with deregulation, at least of financial markets.

Questions & Answers

income and substitute effect
Ali Reply
what are the causes of scarcity
Herieth Reply
meaning of economc system
Herieth
what is oligopoly?
Mini
a
zakir
oligo Means Few and poly Means sellers. A market which have A few sellers. limite 2to7 or 2 to10. e.g. telecome company
zakir
only few firms account for large number of products
Ali
and barriers to entry
Ali
An oligopoly is where there is a few number of firms that are in competition. Emphasis placed on few firms. these firms will dominate the market. An example of this type of market could be cellphone markets.
Kayla
What is the difference between production lsoquant and production lsocost
Sarah
Isocost curve is a producer's budget line while isoquant is his indifference curve. Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per
Mini
what is the price discrimination?
abdullah
In a typical market, the demand and supply functions are defined by Qd= a-bp and As=-c + dp. IF the government interferes with the market by imposing taxes and subsidies determine the outcomes of these policies by means of matrix algebra.
Sarah
Price discrimination; That is to charge differently between customers for the same product or service. ok, i.e. suppose a lady goes to theater with her son and her son happens to be charged relatively lower than what she will pay for. So same service, but different pricing based on "age".
Christoef
what are the principle of economics
Lumen Reply
The question is not straight
Muafue
How do you manage the exchange rate between local and foreign currency
Florence
How does the exchange rate impact production in developing countries
Florence
The appreciation promotes imports substitutions production but devaluation promotes exportable production .As LDCs have unelasticity production factors the devaluation would likely promote the nontradeable goods sector.
wael
what if there's no intervention in an Economy where there is increase in money supply
Florence
What is economic problem?
benard Reply
economic problem basicaly three types whom to produce, what to produce , How to produce you have called choice of commodity also it called central problem of economic
Shad
basic theory about economics
Areeba Reply
what is economics? Define
Shad Reply
A science that studies about human behavior as a relationship between ends and scarce means that have alternative uses,all other things being equal
Oduro
the management and effective use of limited resources to acheive maximum satisfaction of human material wants
Lesedi
is the study of mankind in ordinary business of life by marshall
Herieth
what is decision making
patience Reply
Q=6L-0.5L^2 where Qis no. of car washed and L is the no. of labours. P of each wash is 500 rs and wage =500/labour .as a rational person how many labour will we hire.
Lokesh Reply
given Q¢y=500-0.5Py-2.3pw+0.2Px+0.000001Pz+0.0037i provided that ;Py=30000:Qy=15000; income=60000 1•find price elasticity 2•income elasticity of demand 3•interpret your results 4•from income elasticity of demand what type of product would (y )be{luxury or necessity good}
Samson Reply
Price elasticity= dQd/dP * P/Q
The
PW is= what
The
determinants of demand
Tanka Reply
low of supply and demand
Arti
taste and preferences consumers income price of related goods number of buyers
Lesedi
how to e valuate return to scale?
Abdulkerim Reply
pls can you make all the defination to be in an orderly manner in demand and supply
Fule Reply
Demand refers to the quantity of goods and services consumers are willing and able to purchase at each conceivable price at a given time period.
Abraham
supply is the quantity of goods producers are willing and able to make available for sale at each possible price in a given time
Lesedi
please what is decision and choice making and how relevant is the concept of choice to household and government
Aisha Reply
choice can help you go in for more cheaper good for example you go to a store to buy chocolate you notice it cost 100 then you decide to go to another you see that chocolate cost 75 so you decide or choose to buy were is more cheaper
Fule
choice also help you to manage your household is choosing good which are necessary
Fule
Processes to long run equilibrium under monopolistic competition
Keem Reply
Its the relationship between households and firm in economics
Nida Reply
please what is decision and choice making and how it is relevant to the concept of choice
Aisha

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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