CHAPTER 1 An economy is a system in which scarce resources are allocated among competing use to satisfy human wants and

needs. Scarce resources=factors of production=land, labor, capital, entrepreneur An economy based on free market transactions is self organizing/market economy 1. producers and consumers act independently to satisfy wants and needs 2. responds to price set by market forces of demand and supply Self interest is basis of economic order Efficiency- use of least amount of resources to satisfy human needs and wants. Characteristics of market economy: 1. 2. 3. 4. Self interest: maximize benefits Incentives: price high want to sell more, price low want to buy more Market prices and quantities: exchange using market forces of demand and supply Government: there is control economic activity. Defined by laws passed by legislatures and enforced by the court and the police

Economics is the study of the management of the scarce resources to satisfy human wants and needs Production: act of making goods and services Consumption: act of using goods and services Scarcity leads to making choices and choices lead to opportunity cost Opportunity cost: next best alternative forgone Production possibility curve: 1. Shows production capacity of two goods with a given amount of resources(limited) 2. Illustrates of attainable combination of goods 3. Shows scarcity(unattainable points) choice(attainable points) and opportunity cost(-ve slope of boundary) 4. A point inside the curve: resources arent fully employed, there is spare capacity; productive inefficiency A point outside the curve: unattainable because of limited resources A point on the curve: full utilization of resources; efficient Concave shape means: increasing OC; law of marginal OC rises

Straight line shape means: constant OC; doesnt change with allocation of resources; law of marginal OC constant Normally concave because all resources cant be utilized in all industries. Produce at OC of producing 1 unit=benefit gained from that unit; MC=MB Economic problem: What is produced and how? Resource allocation and efficient technology What is consumed and by who? Distribution and ability to trade Micro econ deals with the causes and consequences of the allocation of resources as it is affected by the price system and govt policies that influence it. Why resources are sometimes idle? Availability of jobs and production potential Is productive capacity growing? Economic growth=shifts PPC outwards=rise in productivity Macro econ is the study of the determination of economic aggregates output, employment, price level, rate of economic growth etc Circular flow of income: (see diagram from book) Individuals/consumers: owner of factor services; earns income from selling factor services to firms Firms: buys factor services from individuals and produces goods and services and individual receive a return as income Consumers: buys goods and services from firms and pay them which is an income for the firms. Hence money flows from firms to individuals and then from individuals to firms (consumption)=circular flow of income and expenditure. There is also 1. Injections(not from households): investment from firms on capital equipment or on stock (inventories) govt spending by central and local divisions and also bye govt agencies Exports 2. Leakage/withdrawal(doesnt flow back): savings both by households and firms taxes for both households and firms; imports both households and firms in case of open economy

Specialization: 1. 2. 3. 4. Concentrates on producing on good Not self sufficient Relates to concept of comparative advantage-produce the good with lower OC Leads to greater efficiency-repetitive of production of one good and lower OC

Division of labour: 1. 2. 3. 4. 5. 6. 7. 8. 9. Breaking up of production process into segments of specialized tasks Specialization within the production chain Greater efficiency and productivity as each worker is assigned to a single task Allows use of specialized machinery; cost effective; allows faster production and causes point 3 No time loss in switching jobs Allows direct hiring of specialized workers Less time spent in training Repetition of task will make it boring; workers lose interest; in turn reduces productivity A workers absence will cause a break in the line of production

Specialization is accompanied by trade Pervious mode of trade: barter-an economic system where goods and services are traded directly for other goods and services. Requires double coincidence of wants Now money facilitates trade. Money is the mode of exchange for goods and services. Globalization integration of world economies into a single international market. It involves the dissolution of barriers which deter: 1. 2. 3. 4. Mobility/trade of goods and services across national boundaries Mobility of labor across national boundaries Free movement of financial capital between countries Free exchange of intellectual and technological capital across national boundaries

Characteristics: 1. Increased interdependence of economic agents 2. Establishment of global brands and global sourcing ( procurement strategy aim at exploiting global efficiencies in production) 3. Foreign ownership of companies 4. Increase in trade both goods and services

Causes: 1. Improved transportation, infrastructure and operations-greater: market base consumer and output 2. Improvements in communication and information technology: consumers have info about product and economic integration 3. Trade liberalisation through reduction in protectionist policies: removal of trade barriers 4. Development of international financial markets 5. Growth in trade bloc(NAFTA) and monetary unions 6. Increased capital mobility Economic systems: Traditional systems: system in which behaviour is based mostly on tradition 1. Allocation and distribution based on custom 2. Effective in an unchanging environment 3. E.g feudal systems: traditional prices offered to all Command economy: system in which most economic decisions are made by a central planner- govt 1. Allocation and distribution through rationing by govt 2. Requires forecasting 3. Centralization of decisions Free market economy: resolves economic issues through market mechanism Characteristics and evaluation: 1. Motivation: producer and consumer motivated by self interest. Both are maximizers: consumers utility and producer profit. Govt wants to maximize social welfare 2. Private ownership: most factors of production are privately owned. Govt has right to uphold property rights through the legal system 3. Free enterprise: consumers and producers have the right to buy and sell according to their wish through the market mechanism. Govt places few limit on purchase and sale. 4. Competition: will exist if economic units are free to allocate their resources according to their wish 5. Decentralized decision making: freedom of choice ;no single body allocates resources instead it is the decision of individuals 6. Govt still has to provide: public goods not provided by market mechanism; issue and maintenance of the value money; adequate legal framework for allocation and enforcement of property rights 7. Infinite choice: depends on income 8. Incentive to improve quality and to innovate 9. Distribution of income and wealth: depends on spending power

Mixed economy: mixture of central control and market determination Characteristics: 1. Motivation: producer and consumer motivated by self interest. Both are maximizers: consumers utility and producer profit. Govt wants to maximize social welfare motivated by that 2. Ownership: private ownership + significant ownership by govt as well 3. Competition: choice available in private sector but in public sector resources are allocated according to planning mechanism. Hence no or little choice in public sector 4. Govt: has to regulate economic activities within the private sector- needs to ensure competition exists; has to provide not only public goods but merit goods as well. They may have ownership of key resources leading to natural monopolies. Read the great debate from the book.

CHAPTER 2 Normative statements: are opinions; value judgements and cannot be supported by facts Positive statements: are facts which can be proven true or false with proper economic evidence; not based on opinions Theories: 1. Explains why a relationship exists 2. Can only be disproven 3. Is testable by comparing predictions to evidence All theories are distinguished by their variables, assumptions and predictions. Variable: any well defined item, such as the price or quantity of a good, that can take on various specific values Two types: 1. Endogenous/dependent/induced: one that is explained within a theory 2. Exogenous/autonomous/independent: one that is determined outside the theory Assumptions: defined by motives, causation and condition of application 1. Motives-maximizing self interest 2. Causation-one factor cause the other i.e functional relationship 3. Condition-constraints on theory; circumstances under which the theory applies Predictions: hypotheses: propositions which can be logically deduced from assumptions (cause and effect) Models: same as theory; quantitative formulation of theory OR Economic model: abstraction designed to illustrate some point but not designed to generate testable hypotheses Testing theories: Basic test is prediction. Stages of testing: 1. 2. 3. 4. 5. Assumptions about certain behaviour Empirical thinking Predictions Testing and empirical observation Theory does or doesnt provide better explanation to its alternatives; if not theory is modified or discarded in favor of better competing theory

Refutation test: proper way to test a theory is to determine if it can be refuted by evidence Confirmation test: yields inconclusive results by looking for evidence that confirms the hypothesis Statistical Analysis: must use statistical methods to analyze relationships among variables that occur simultaneously Correlation: two variables move together (-ve or + ve) Causation: reason for, give rise to Eg: Higher education leads to higher income Empirical observation: richer have better education Correlation: income and education +vely related Causation: maybe it is the other way round. Rich buy more education. The casual arrow goes in the opposite direction Index numbers: 1. Comparison of change in variables over time 2. Expressed as a percentage relative to a base period(normally 100) Formula: [absolute value in given period/absolute value in base year] x 100 CPI: weighted average of representative of basket of goods Graphing economic data (representation of data): Cross sectional data: set of observations; one particular time; one variable; several different units Time series data: set of observations; one variable; over a period of time Scatter diagrams: graph of statistical observations; designed to show relation between two variables; can be either cross sectional or time series

CHAPTER 3 Quantity demanded: certain amount of goods and services one wishes to purchase at a given price over a period of time Demand: relationship between QD and P. ones willingness to purchase goods and services Stock variable: measurement of a variable at a specific point in time. Flow variable: measurement of a variable over a period of time. Eg per unit time/per month/per hour Demand schedule: representation of demand in table form Demand curve: graphical representation of the relationship between QD and P QD and P inversely related. Reasons for inverse relation: satisfying wants has alternative means; as p falls satisfying it becomes relatively cheap; the OC of satisfying the want decreases. General shape is convex. ALL OTHER VARIABLES CONSTANT Shifts in demand:

1. Income: relate to average income and distribution of income; mention normal and inferior goods 2. Prices of other goods: Substitutes-good which can replace other goods to satisfy similar wants Complements-goods which are consumed together. 3. Tastes: Consumer perception 4. Population 5. Prediction

Quantity supplied: amount of goods and services a producer wishes to provide at any given price over a period of time Supply: a producers willingness to provide goods and services; relationship between QS and P. Supply schedule: representation of supply in table form Supply curve: graphical representation of the relationship between QS and P QS and P positively related. Reasons: profits; as p rises, profit rises, incentive ALL OTHER VARIABLES EQUAL

Shifts in supply: 1. 2. 3. 4. 5. Price of inputs: relate to its costs; high cost of input low profit and vice versa Technology: innovation; newer cost effective method incentive to producer Government taxes and subsidies Price of other goods: relate profit motive to substitutes and complements Number of suppliers: firms entering and leaving the industry

Excess demand: QD > QS; cause upward pressure Excess supply: QS > QD; causes downward pressure Market: situation consumers and producers can exchange g and s at a negotiated price Equilibrium or market clearing price: price at which QD = QS Disequilibrium price: price at where QD is not = QS Comparative statics: predicting after analysis of exogenous variables on equilibrium Absolute price: price paid to purchase one unit of g and s Relative price: ratio of absolute price of two goods

CHAPTER 4 PED = responsiveness of quantity demanded to a change in price Formula = % change in QD/ % change in P = [Q2-Q1/(Q1+Q2)/2] / [P2-P1/(P1+P2)/2] REMEMBER: take average Inelastic demand: % change in QD is less than % a change in P. elasticity less than 1. Elastic demand: % change in QD is more than % a change in P. elasticity greater than 1. REMEMBER: ignore the sign. Just consider the number PED=0 PERFECTLY INELASTIC PED<1 INELASTIC PED=1 UNIT ELASTIC PED>1 ELASTIC PED=INF. PERFECTLY ELASTIC Elasticity depends on: 1. Availability of substitutes-the higher the number of substitutes higher the elasticity 2. Time-inelastic in the short run; over time more goods are produced which serve as substitutes and better technology(more efficient method of production) is available which makes it more elastic Elasticity and total revenue (expenditure) Change in total expenditure in response to a change in price depends on elasticity. TE increasing PED>1; max at PED=1; falling at PED<1 (considering that price is falling) PES: responsiveness of quantity supplied to a change in price Formula: % change in QS/ % change in P = [Q2-Q1/(Q1+Q2)/2] / [P2-P1/(P1+P2)/2] REMEMBER: take average

Inelastic supply: % change in QS is less than % a change in P. elasticity less than 1. Elastic supply: % change in QS is more than % a change in P. elasticity greater than 1. PES=0 PERFECTLY INELASTIC PES<1 INELASTIC PES=1 UNIT ELASTIC PES>1 ELASTIC PES=INF. PERFECTLY ELASTIC Factors of PES: 1. Substitutes of inputs-due to a change in P if a producer can shift from producing one good to another; it is supposed to have a high PES which means elastic. 2. Time- short run relatively inelastic; over time becomes elastic; eg talk about agricultural goods, spare capacity-the more, higher the elasticity; efficiency allows greater production in the long run 3. Costs: cost rises slowly with QS elastic and inelastic if cost rises quickly with QS Excise tax-a tax imposed on the sale of a particular good or service Tax incidence: location of the burden of the tax Distributed in a way that it depends on the relative elasticity of demand and supply From the diagram tax is the vertical distance between the two supply curves Inelastic D elastic S consumer bears most Elastic D inelastic S- producer bears most YED: responsiveness of QD to a change in income +ve normal ve inferior; YED<1 income inelastic (necessity) YED>1(luxury) XED: responsiveness of QD of good A to a change in price of good B; helps understand the degree of competition +ve substitute ve complement

CHAPTER 5 Partial equilibrium: analysis where the feedback effect of a change in one market on other markets is ignored; if the market is small relative to the economy its feedback effect will be even smaller. So in such cases using this is ok General equilibrium analysis: analysis of all markets in the economy all together and observing the effect of one on another.

CHAPTER 11 Concentration ratio: market share controlled by n largest firms High CR means market dominated by few relatively large firms. Eg oligopoly

Low CR means high competition. Few firms dominate the market. Low market power. Eg monopolistic competition Two categories under imperfect competition: 1. Monopolistic competition: large number of small firms; non-strategic behaviour 2. Oligopoly: small number of large firms; strategic behaviour Basic assumptions of imperfect competition: 1. Differentiated product products which are close but not perfect substitutes of each other; similar characteristics but dissimilar enough to be sold at a different price 2. Price maker differentiated products allows firms to set the price within a range; normal demand curve; referred to D and S but not completely by market forces; allows D to determine sales Firms detect change in market conditions when there is a change in its sales. Normally they act to it by adjusting output holding P constant. However, if the problem still persists only then they incur the cost of adjusting P. 3. Non-price competition: i. Advertising and sales promotion policies: talk about less elasticity ii. Use of branding: talk about less elasticity iii. Investment into new technology iv. Product quality v. Merger vi. Collusion vii. Developing ethical products or CSR viii. After sales services ix. Loyalty cards x. Guarantees Monopolistic competition: large number of small firms; freedom of exit and entry; differentiated product giving them the control over price; non strategic behaviour decisions taken based on self interest.

Market power is restricted in the (also the answer to the difference between this and perfect competition and monopoly): 1. Short run because of the similar products of competing firms; relatively elastic demand

2. Long run because of the moderate barriers to entry and exit. Supernormal profits of existing firms acts as an incentive for new firms to enter the industry and compete the profits away. Assumptions of monopolistic competition: 1. Differentiated products mean branded products; has close but not perfect substitutes hence firms face a highly elastic demand curve. 2. Access to same technological knowledge 3. Moderate barriers to entry and exit. Supernormal profits of existing firms acts as an incentive for new firms to enter the industry and compete the profits away. 4. Allows them to be price makers; will not have to suffer a setback of losing all its customers even if the price is increased Predictions: 1. Short profit maximizers: firms face highly elastic demand due to the close substitutes and wide range. Hence they maximize their profits at MC=MR. (look at figure in the book, pg258) 2. In the long run, the profits of the existing firms act as incentive for new firms to enter the market. The total demand has to be shared among the new total firms. The demand curve shifts to the left for each existing firms. Entry continues until all the profits have been competed away and the demand curve is tangential to the LRAC. At this point firms only earn normal profits AC=AR. If demand curve is below the LRAC, firms are operating at a loss. This will lead to the exit of firms and the new demand will be shared by the remaining firms which shift to the right until it is tangent to the LRAC. If demand curve is above the LRAC positive profit can be earned from a range of output. This will again act as incentive for new firms to enter the industry until the demand curve is tangential to the LRAC. Excess capacity theorem: In the long run firms produce at a point which is not the minimum average cost point. This results in excess capacity. It is the gap between the minimum average cost and the actual equilibrium output (located in the falling part of the LRAC). The firm can increase output to operate at a lower cost. However, they wont do so because producing at the minimum average cost will reduce revenue more than the cost.

Oligopoly: small number of large firms; contains two or more firms, at least one of which produces a significant portion of the industrys total output; there is interdependence among the firms; strategic behaviour they take into account the impact of their decisions on the industry.

Characteristics of oligopoly: 1. 2. 3. 4. 5. High concentration ratio market under the control of relatively few firms Significant barriers to entry and exit: allows dominance and earning of supernormal profits Interdependence Product branding Price rigidity

Oligopolies are price makers but cannot go into a price war because their decisions will cause an impact on the behaviour of the competing firms. A price reduction maybe a well planned strategic decision however in response competing firms will also reduce. This will rather lead to a fall in revenue. They would only engage in a price war: 1. Production costs are lower than its rivals 2. Natural outcome of economic events. Eg entry of new firms 3. Diverse production line. One covers the loss of the other. Takes the risk to gain greater market share. Evaluation: 1. Might lead to losses causing firms to leave as they have high sunk costs 2. Lower consumer choice 3. If demand inelastic, fall in price leads to fall in TR

Basic dilemma of oligopoly: 1. Cooperative(collusive) outcome: firms cooperate to maximize profit 2. Non cooperative: firms act according to their self interest; maximize their own profits Game theory: Study of the decisions taken by a firm where it anticipates the impact of its decision on the competing firms Payoff matrix: table that shows the amount of profit which can be earned in each possible combination of the two firms actions. Strategic behaviour:

Cooperative outcome: when both firms cooperate and they enjoy a higher amount of joint profits. However the incentive to cheat and earn always prevails. Therefore cooperative outcome only occurs of the firms have an effective method to enforce their agreement. Non cooperative outcome: discuss prisoners dilemma. Refer to school notes! Nash equilibrium: point neither player is able to improve their position given the choice of the other player; it is equilibrium because neither has an incentive to change their choice of strategy given the choice of strategy of the other. Refer to school notes and G Book! Pareto optimum: you cant make someone better off without making someone else worse off Pareto improvement: make someone better off without making someone else worse off Pareto dis-improvement: make some worse off without affecting others Allocative efficiency=Pareto Optimality/ Pareto Efficiency: an allocation where no Pareto improvements can be made Read school notes and the G book for all game theory content!! Types of cooperative behaviour: study from school notes!! Types of competitive behaviour: 1. Competition for market share: talk about non price competition 2. Innovation: larger profits can be gained instead of cooperating; creative destruction; increase in standard of living in the long run; social benefit outweighs any losses by restriction of output at point in time

Firm created entry barriers: 1. Brand proliferation: the larger the number of differentiated products that are sold by existing firms the lower the market share available to a new firm. 2. Advertising: existing firms already have created a strong brand image through advertising. Therefore new entrants must spend heavily on advertising to establish their product. However it will lead to a substantial cost disadvantage because sales would not be significant. 3. Predatory pricing: intentionally tries to push down the price below the average cost to drive out rival firms. It is illegal 4. Limit pricing:

Reasons for the existence of oligopoly/ barriers to entry for new firms:

1. Mergers and acquisitions 2. Decrease rivalry and increase profits 3. Natural causes: high start up cost; economies of scale; economies of scope (cheaper to produce two product jointly) 4. Ownership of key resources 5. Strong brand 6. High R and D 7. Predatory pricing: intentionally tries to push down the price to such a level that new entrants are unable to make a profit and are forced to leave the industry. Incumbent firms may make a loss in the short run. 8. Limit pricing: prices reduced to just above average costs and make sure that new entrant makes a loss. They good profits but not high enough to attract new firms 9. Sales maximization: may wish to maximise sales in order to gain greater market share. Will lower its price where AC=AR 10. Price discrimination: type of predatory pricing tactic; harms competition at suppliers level Contestable markets: read from school notes (refer to summary of market structures and globalisation from school notes) Evaluations of oligopoly: 1. Market adjustments: talk about how oligopolies adjust their output first due to an increase in sales and then the price 2. Profits: some engage in joint profit maximisation; some compete and profits are only retained in the long run if there are natural entry barriers to the industry. Therefore the profits wont be competed away. 3. Innovation: innovation leads to economic growth; better quality and new products leads to higher standard of living; so it is better that the compete; competition will lead to innovation if they want greater market share; with greater profits they will be able to fund further innovations.

CHAPTER 12

Causes of inefficiencies due to full employment of resources: 1. Method of production 2. MC not equal throughout the industry 3. Distribution of resources Efficiency = minimizing costs; means inputs fully utilized (all inputs are used) and efficiently employed (inputs are not wasted); incurs the least cost possible Economic efficiency: concerned with optimal production and distribution of scarce resources to maximize economic and social welfare. Way of evaluating performance of firms, markets and the economy as a whole. Productive efficiency: General idea: minimize amount of inputs for given output and vice versa. 1. Firms: operating at the lowest possible cost to produce a given level of output; each firm is on LRAC; LRAC defines the lowest cost of production 2. Industry: operating at the lowest possible cost to produce a given level of output; all firms have the same MC; if not there is need of reallocating production among the firms Productive efficiency and PPC: point inside the curve shows productive inefficiency which means either the firm is minimizing its costs or the MC is not equal across the industry Productive efficiency implies: 1. 2. 3. 4. The least costly factors of production The best available technology and the most efficient production method Exploiting economies of scale (getting close to MES) Minimizing the wastage of resources in their production process

TEST FOR PRODUCTIVE EFFICIENCY: each firm on LRAC and each firm has the same MC Allocative efficiency: market price for each good is equal to its marginal cost. P=MC Allocative efficiency and PPC: all points on the PPC are productively efficient however only one point is allocatively efficient where MC=MB In practicality no point is the optimum allocative point. One point could be better off than the other. It depends on the distribution of income.

Market structures and efficiency:

Perfect completion: 1. Productively efficient: because all firms produce at the lowest point on the LRAC; all firms face the same price which is equal to MC hence MC is equal throughout the industry 2. Allocatively efficient: goods are sold at P=MC Monopoly: 1. Productively efficient: profit maximizers hence produces at the lowest point of LRAC 2. Not allocatively efficient because P>MC Oligopoly and Monopolistic competition: productively and allocatively inefficient Allocative efficiency and economic surplus: Consumer surplus is the difference between the price a consumer is willing to pay and the price they actually pay for a certain commodity. Producer surplus is the difference between the price they actually sell and the lowest price they are willing to sell at. Cost of producing one extra unit would be the marginal cost of it. Hence that is the lowest price a producer is willing to accept. Any amount below MC would reduce profit. Producer surplus is the difference between price and marginal cost of a good, summed over the quantity produced. For perfect competition: The sum of producer and consumer surplus is only maximized only at the perfectly competitive level of output. It is the only allocatively efficient point. No deadweight social loss. Refer to diagram in page 288 For monopoly: it is not allocatively efficient because P is not = MC; they maximize at MC=MR so P>MC; this results in a deadweight loss. Look at page 290 Innovation leads to a better standard of living and better goods. This allows firms to earn more profits as long as the competing firms have not been able to find a similar innovation. Therefore this acts as an incentive for firms to do better and firms spend heavily towards R & D. Even though monopolies (taken as example) lead to dead weight social losses, their innovations lead to a higher standard of living and better quality products. This happens in the long run and innovation leads to a lower MC and a higher output and P also reduces.

Regulation of natural monopolies:

Competition policy: used to promote allocative efficiency through increasing competition. Basically encourages competitive behaviour instead of monopoly practices Economic regulation: rules of operating a business. When competitive behaviour doesnt function we can use economic regulations as a substitute for competition. CSR Both of these protect the consumer from high prices and restricted output. Natural monopoly: an industry with economies of scale sufficiently large that one firm can most efficiently meet the market demand. Government can be owners of such entities. In Canada it is known as a crown corporation. They can also allow private ownership but with regulation. Either ways the government controls the pricing policy of the industry which conflicts the idea of profit maximization. Short rub pricing policies: 1. Marginal cost pricing basically price is equated to the marginal cost to achieve allocative efficiency. Point where D cuts MC. But there is a conflict between the regulators and monopolists desires since it is the not the profit maximization point. When a monopoly with falling average costs, marginal cost pricing leads to a loss 2. Two part tariff a policy where consumers pays a flat fee to have access to the product and then pay specified amounts for each unit of consumption of the good/service. Eg ISP 3. Average cost pricing price is equated to the average cost. Point where D cuts AC. It is not allocatively efficient but the firm doesnt suffer from losses. Producing what is less than the socially optimal level. TR=TC. All costs are covered. Earns normal profit. In case of marginal cost pricing government might have to provide subsidy to cover the losses of the firms but allocatively efficient. No subsidy required for average cost pricing however it is not allocatively efficient. 4. Rate of return pricing: monopolies argue they should receive fair profit; allocative efficiency usually ignored; AC gives only normal profits; form of cost plus pricing; issues- controlling costs and setting fair rate of return Average cost pricing leads to inefficient long run investment. Society would benefit from the large amount of fixed capital allocated to producing the good. Doesnt have any incentive to invest because all they achieve is breakeven/normal profit In the very long run innovation helps change monopolies into highly competitive industry.

Regulation of oligopolies:

Previously govt protected industries from competition by restricting entry Forms of protection: Crow crop (govt owned) or regulations Recently govt intervention lead to : privatisation and deregulation Reasons for this: 1. 2. 3. 4. 5. Oligopolies are good source of innovation: economic growth Cross subsidization Cross fertilization: regulators captured by regulates Crown corp didnt improve efficiency: talk about competition leading to greater efficiency International competition: greater market; greater number of firms; more competition

Competition policy: policy designed to prohibit acquisitions and exercise monopoly power by business firms. Basically stopping mergers and anticompetitive practices for eg colluding to abuse monopoly power. Read the highlighted parts on page 299 for Canadian competition policy and the gbook!!