Microeconomics Theory Questions Research Assignment

Name
Instructor
Course
Date
MICROECONOMICS THEORY QUESTIONS
I. What do the authors believe is the most appropriate measures of theeffectiveness of regulation?
A. When did the deregulation period the authors are studying occur?
The deregulation period mostly started from the mid 1970’s, accelerating in the 1980’s up to the mid 1990’s.
In which industries were regulations relaxed?
The industries affected by the deregulation are the airline, trucking, railroad (transportation), financial, and telecommunication and natural gas (energy) sectors.
B. How much time has passed since the passing of these regulations?
It is now more than four decades since the regulations were adopted, but it was more than twenty years after the article was published
Why does the author believe in this time scale?
The author believes that it is important to consider the costs, benefits and inefficiencies two decades after loosening regulations, especially in the airline sector.
C. What do the authors believe economists’ view of the welfare effectsof regulation have been? Does he believe there is a disagreement between how economists understand the effect of regulation andhow it is more widely viewed? Why do you think he believes such a difference exists?
Welfare is seen to have a positive efficiency on welfare as consumers get better quality services at lower prices when deregulated industries are efficient. The author points out those economists view some industries as monopolistic because of the industry players’ economies of scale, while there are those who are still skeptical that lower prices are associated with deregulation. The differences in perceptions about the effects of deregulation are associated with the impact in the short-term being slow that some are skeptical about the benefits of deregulation
II. What long run considerations do the authors believe studies of regulation should focus on that are ”outside” of our basic model?- freedom of operating , innovations , competition and transition into more efficient markets
* Why do the authors believe that regulated firms can differ fromfirms in competitive markets and monopolies in a way that potentially lowers welfare
Regulated firms are inefficient as the state control prices, entry and exit and profits are at times determined by the state forcing the firms to ignore efficiency and focus on capital investments to get higher profits while there is no incentive to lower prices.
B. What does the author mean when he asserts that regulated firmsface a ”rather different set of incentives in searching for greater efficiency”?
The incentive for greater efficiency among regulated firms is subject to government regulations on price, entry and exit rather than relying on efficient technology and improving operations.
C. Why does the author believe that the view that regulation improves welfare because it reduces monopoly has been discredited?
This is because regulation limits competition and this result in inefficiencies in an industry and there is no incentive to improve on innovations, this does not improve consumer welfare as prices are high and there is no improvement in quality of service.