Social Regulation & Monopoly Lawsuits

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1. Using the demand and cost curves of an individual firm in oligopoly, demonstrate what effects of each of the following are:
a. the Clean Air Act

The Clean Air Act requires that the EPA issue regulations to improve air quality. This has been done in a number of ways. The EPA requires that vehicles sold in the US meet increasingly higher emissions standards, for example. This has resulted in increased costs to automobile manufacturers resulting from having to implement technology to reduce emissions. This shifts the firm's cost curves upward, resulting in higher prices to consumers.

b. The Nutrition and Labeling Act

The Nutrition and Labeling Act requires that processed foods be labelled so that consumers can determine if they are healthy and appropriate for their needs. Prior to the Act, food labels were governed by the 1938 Federal Food, Drug, and Cosmetic (FD&C) Act, which required only that ingredients be listed. With the new law, consumers can easily see the percent fat contained in a item, and its calories per serving. This greatly facilitates determining if the food is within certain dietary guidelines. The new law does cause temporarily higher costs for food manufacturers. However, once the new labels are in place, the costs should return to prior levels.

c. A ban on smoking inside the workplace

This will have two effects, one on smokers and one on non-smokers. Smokers will become less efficient workers than non-smokers, because they are often needing to leave their desks to smoke. With the new law, non-smokers will be more efficient because they will not be breathing smoke while they are working. Both smokers and non-smokers should be healthier, as most of the time the air they breath will be smoke-free. This means fewer sick days, which makes workers more efficient. The final impact on the cost curve will depend on how many smokers the firm has, and how often they need to take breaks.

d. A sales tax

A sales tax will increase the cost of the final product to consumers. This causes a decline in the number of units sold. While neither curve will shift, the tax has the same effect on the firm as a backward movement of the demand curve would. The burden of the sales tax is actually borne by the party with the least elastic curve. This could be the manufacturer, even though the tax is seen by the retail consumer. If the consumer isn't willing to pay a higher price (has elastic demand), the manufacturer will be compelled to lower prices in order to maximize revenue. Thus the consumer may end up with the same final price, and the manufacturer will have less profit per item sold.

V. Which of the three types of government policies- antitrust, social regulation, and economic regulation- is the basis for each of the following?

a. Beautician education standards

Beauticians apply cosmetics and perform procedures that ...