Social and Economic Regulations
Group #5:
Ljaz Akram
Cynthia Aponte
Aisha Mamane
Jessica Okolotkiewicz
Richard Torchon
Prof. Kone: Microeconomics
What is Social Regulation?
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Regulation consists of rules identifying
permissible and impermissible activity on the
part of individuals, firms, or government
agencies.
Social Regulations are aimed at restricting
behaviors that directly threaten public health,
safety welfare or well being.
Group #5: Aisha Mamane
Energy and Environment
-EPA (Environmental Protection
Agency)
Health and Safety
-OSHA ( Occupational Safety and
Health Administration)
Group #5: Aisha Mamane
Product & Labor Market
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Product Market
CPSC (Consumer Product Safety
Commission)
- Recalls
- Labels contents
Labor Market
EEOC (Equal Employment Opportunity
Commission)
- Investigate complaints Group #5: Aisha Mamane
What is Economic Regulation?
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The prescribing of prices and output levels for
entire industries.
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Natural Monopolies
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Railways
Telecommunications
Utilities
Mail Delivery
Group #5: Jessica Okolotkiewicz
Natural Monopolies
“A natural monopoly exists when economies of scale make it efficient for
a single firm to supply the entire market.”
LEGEND
LRATC = Long-run average total cost
ATC = Average total cost
Group #5: Jessica Okolotkiewicz
Anti-Trust Laws

Government policies and programs designed to
control the growth of monopoly and enhance
competition.
Group #5: Jessica Okolotkiewicz
The Fair Rate of Return

Regulation is used to make price and
supply much like what a perfectly
competitive industry would provide.
–
At Pm too little output and too much
profit for a firm is yielded.
–
At Pr the company produces Qr but is
subject to make a loss because the
demand lies below the average total
cost.
–
Regulation provides a cost of Pf which
is set at a zero economic profit, where
demand and average total cost
intersect.
LEGEND

ATC = Long-run average total cost

D = Demand

MC = Long-run marginal cost

MR = Marginal revenue
Group #5: Jessica Okolotkiewicz
Problems with Regulation
Price is set at a percentage of
average cost.
 Creates Negative Incentives
 Increase costs
 Run inefficiently
 Acquire excess capacity
Money is wasted in order to
increase rates to increase profits.
Group #5: Jessica Okolotkiewicz
What is Deregulation?
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The government removes, reduces, or
simplifies restrictions on businesses.

Simpler regulations lead to more
competition, which increases
productivity.
Group #5: Cynthia Aponte
Airline Deregulation Act of 1978

The main purpose of the act was to remove
government control from commercial aviation
and expose the passenger airline industry to
market forces.
Group #5: Cynthia Aponte
Benefits of Deregulation

The airline industry expanded and they were
able to attract travelers with discounts, more
flights, and lower rates.

Trucking companies were able to set their
own rates, routes, and carry more freight.
Group #5: Cynthia Aponte
Effects of Deregulated Industries

Many airlines and trucking
firms became bankrupt due to
the increased competition.
Group #5: Cynthia Aponte
Airlines Affected by the Deregulation
Act of 1978
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Eastern Airlines
Pan Am
TWA
Continental
Group #5: Cynthia Aponte
Privatization
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Occurs when a government-run business
is transferred to a privately owned
business.
Many private firms are providing garbage
services, water services, and road
building maintenance. These are
contracted out (privatized) by the city or
state.
Group #5: Cynthia Aponte
Regulation and Deregulation
in other countries
Group #5: Richard Torchon
Nationalization
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Definition: Government takes over and
operates an industry.
It was preferred rather than regulation as
a solution to natural monopoly in many
regions in the world.
Issue: Compensation from the
government to the private company
being bought out.
Group #5: Richard Torchon
Privatization
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Definition: transfer of ownership from
the public sector to the private sector.
Three types:
1.
2.
3.
Wholesale privatization – entire publicly owned firm
is transferred to private ownership.
Contracting out – specific aspect of a government
operation is carried out by private firm.
Auctioning – the rights to operate a government
enterprise go to the highest private-sector bidder
Group #5: Richard Torchon
Privatization (cont.)
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Since 1980, more than 80 countries have
launched efforts to privatize their stateowned-enterprises (SOE).

since 1980, more than 7000 SOEs have
been privatized worldwide.
Group #5: Richard Torchon
Privatization (cont.)

Issue:
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
Pro-privatization believes that private markets
actors can be more efficient due to free market
competition.
Anti-privatization argue that that governments
ensure the efficiency of their enterprises in order
to gain potential voters.
Group #5: Richard Torchon
International Regulations
GATT and the WTO
Group #5: Ijaz Akram
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The General Agreement on Tariff and Trade
( GATT)
The World Trade Organization (WTO)
Group #5: Ijaz Akram
The GATT

The first global trade agreement called GATT.
In April 1947, delegates from the United
states, Asia, Europe and Latin America
traveled to Geneva, Switzerland. Aware of
the effects of trade restrictions on economics
health that had been experienced during the
Great Depression.
Group #5: Ijaz Akram
The WTO
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Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986–94)
Membership: 150 countries (since 11 January 2007)
Budget: 175 million Swiss francs for 2006
Secretariat staff: 635
Head: Pascal Lamy (Director-General)
Group #5: Ijaz Akram
Functions
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Administering WTO trade agreements
Forum for trade negotiations
Handling trade disputes
http://www.wto.org/
Group #5: Ijaz Akram