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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

the forces of dd and ss
Kemg Reply
how did you get 2900
mba Reply
what's equillibrium price
Begmee Reply
it is a Price at which there is no tendency for both the quantity demanded and quantity supplied to change.
Atanga
what is joint demand
Alejandro Reply
joint demand?
Isma
is when two commodities relate together
Emmanuel
it refers to the demand for two commodities that are jountly consumed or used together
Atanga
It is when commodities are used together
Addo
who is a conspicuous consumer
Atanga
what are subnormal profits in ecos
Tawe Reply
what is an ancient tiger
emmanuel Reply
The Four Asian Tigers, Four Asian Dragons or Four Little Dragons, are the economies of Hong Kong, Singapore, South Korea and Taiwan, which underwent rapid industrialization and maintained exceptionally high growth rates between the early 1960s and 1990s.
Napoleon
It is not correct.
Nelly
state ur own na mr correct
Napoleon
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Napoleon
u are correct
emmanuel
woow I never knew that
Birungi
ask
Foday
a
Foday
what is GDP
Lamin
gross domestic product
Tawe
I want to see unemployment essay
Mmonwa Reply
hello
Birungi
Inflation is defined as the rise in price of a commodity.
Nureni Reply
It is defined as the rise in price of a commodity.
Nureni
the persistent rise in the prices of goods and services. or commodities.
SULEIMAN
pls the third and fourth law of supply
Yarouh
what's GDP?
Allen
gross domestic product
Annor
GDP stands for Gross Domestic Product
Sande
yes
HlobisileM
what us maxima and minima
MiXUP Reply
Maxima s below equilibrium. Whilst minima s above. Equilibrium
Afran
Wht is demand
Afran
is the willingness and the ability of a consumer to purchase goods at a given price and at a particular point in time.
Assan
Ohhk different question? Ask
Afran
why is the demand curve downwards sloppy?
Assan
3 Reasons.. 1... diminishing marginal utility 2... substitution effect 3...income effect
Harshita
thanks
Assan
Because of the negative or inverse relationship between price and quantity demanded
Afran
what is the law of diminishing returns states?
Assan
ohk
Assan
The law states that all other things being equall as much of variable factor(labour) is employed on fixed factor(land) the marginal product rises..attain a maximum and begins to fall.
Afran
What is income elasticity of demand
Afran
what is monetary policy
Edward
Monetary policy is an attempt to influence the economy by opera ting in such monetary variables
Afran
thanks
Edward
Wlcm
Afran
Wht is disutility?
Afran
is disutility? is rightly writing?
Yhlas
is it i wanna say
Yhlas
Yes please Disutility
Afran
what is macro economics?
Oyas
the branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
idk
in other words it is the study of the economic as a whole
idk
What is an Economic growth
Ayumo Reply
Economic growth is the process whereby the real per capita income of an economy increases over a long period of time.
Nureni
what is the generally accepted defination of economics and by who
IDY Reply
Economics is defined by Lionel Robbins as a social science which studies human behaviour as a relationship between ends and scarce means which have alternative uses
Tba
Lionel Robbins definition is the best and acceptable definition of Economics.
MUNTARI
Importance of economic
Achike Reply
Helps in decision making
MP
I need like 5 importance
Achike
hi
Physcal
Hey
Muhammad
hellow dear.
juwel
hello
Al-ameen
Hello
MP
it helps an individual in rational decision making process
Assan
Fine and u
Buzabaryaho
how does it make individual in rational dicision making decisions
Annor
if an individual is faced with unlimited wants.
Assan
it also helps an individual in arranging their wants in order of their importance.
Assan
ohk
Annor
ok
Al-ameen
Hello guys
Radah
My name is Radah
Radah
Please what is a scale of preference used for?
Radah
it's use for arranging wants in order of their importance.
Assan
in other words when an individual is faced with unlimited wants,scale of preference would help the individual to select the most important wants.
Assan
Thanks
Radah
welcome
Assan
what is tourism
forgive Reply
Tourism is travel for pleasure or business
Yusuf
It is the commercial organization and operation of holidays and visits to places of interest.
Nureni
who is a price taker?
sam Reply
A price taker is a person or a company who have no control to dictate a prices of a goods or services
Unique
Someone who sets price
Nureni
In the trading world, a price taker is a trader who does not affect the price of the stock if he or she buys or sells shares.
Nureni
A price taker refers to a firm or an individual who sets the price of his good and services based on an external factor. In other words he cannot choose and set a price by himself. An example is a firm operating in perfect competition where prices are set through the price mechanism.
Tba
in a common and suitable sense state the law of diminishing returns
Unique Reply
The higher the satisfaction derived from a particular commodity,the lower the demand for it but that law doesn't match in some instances.
Nureni
state the features of an imperfect competitive market
Naomi
@NURENI instance like wat
Unique
imperfect competitive market involves large number of sellers and buyers price makers selling cost product differentiation free entry and exit of a firms
Unique

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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