BUS5POE Principles Of Economics

On Public Policies and Microeconomic Regulation

In this case, the statement by Ronald Regan should be taken to mean that the government should interfere in the economy as it ought to. In the first place the government intervention can be used to protect the consumers in case the prices are too high and predatory. In the case of suppliers, the government intervention using subsidies and incentives can stimulate production and in turn crate jobs in case the price was previously too low. In other cases, government intervention is required in case there is a public good required which may not be provided for by the firms such as roads, railways and social amenities such as hospitals and water. Sometimes the government intervention is good to protect consumers against harmful consumption of certain goods such as alcohol and cigarettes. Despite this usefulness of government intervention, it may sometimes be less useful in the occasion where the government decides to put a price ceiling which may lock out production of certain products. It may also be disadvantageous when the government decides the quantities of a product that should be produced instead of the market selecting which may lead to demand deficits or surpluses (Rigby & Hatch, 2016).

Identifying Key Issues And Summarizing The Big Picture

• In the interview, Professor King talks about various economic policies and their implications.
• He discusses how the gap between the wealth and the poor is encouraged through the tax system in the tax policies that are in place.
• For example, in healthcare, the wealthy receive both Medicare and private insurance while the poor receive only Medicare.
• He proposes that the economic policies should not punish people for being poor but instead make it so such that if the wealthy require additional services or social amenities
• They should pay for it while the less wealthy should be able to access the social amenities at an equitable level.

Connecting Economic Theory To Policy

2) Natural Monopoly

A natural monopoly occurs when there are high fixed costs that are involved in the stat up costs of the business in a particular industry such as unique raw materials or technology (Calderon & & Schmidt?Hebbel, 2016).

Natural monopolies should be regulated since the providers may take advantage of the consumer demand and charge higher prices.

3) What are the possible approaches of the government towards ownership and regulation of utilities such as electricity, gas, and road networks? What is Prof King’s view on which approach is the most efficient? What is your view? Use data or examples from the internet to support your answer.

One way of regulating monopolies is cost plus regulation where the average cost of production is added with an added profit that the firm is expected to earn and then the price is set accordingly. The other method is through price cap regulation where the regulation sets a maximum price which can be charged by the company. According to Prof King, the cost-plus regulation is more efficient. In my view I agree with Prof King, since the cost plus regulation allows the manufacturer to still make a profit on the product or service provided.

For example, in the case of gas, if it is charged at 2 dollars per liter, and the cost of production is 1 dollar per liter, the 1 dollar per liter remains as profit for the company. In the case of a price cap, the price allowed will be 1.5 dollars and the cost of production is 1 dollar, it will lead to a profit of 0.5 dollars per liter which is lower than that in the cost plus regulation price setting (Kagel & Roth, 2016).

4) Is Prof King an advocate of the ‘no surcharge’ policy on credit cards? Outline his argument and attempt to apply relevant economic theory if you can. Then go to www.accc.gov.au/business/pricing/displaying prices and express your views on the current regulation of credit card surcharges as outlined there.

According King the no surcharge policy should be affected since it unfairly makes someone incur higher costs for the purchase of a good. The regulation says that the credit card surcharge should not be excessive. I think that the definition of excessive should be defined to avoid ambiguity.

Critical Thinking & Reflection

5) Write down one idea discussed in the interview that you found new or interesting, or that you disagree with, and explain why.

I agreed with his claim that there should be universal health care. This ensures that both the wealthy and the less wealthy individuals have quality access to healthcare since it is not a preserve of the rich.

6) Write down three good questions about any of the topics covered in the interview that you would ask Prof King if you had the chance.

Does universal health care mean equal quality of healthcare?

Doesn’t government regulation get in the way of resource allocation, ie since the rich have more they should have more opportunity to access resources?

How will the banks providing the access to cash obtain compensation for the use of those services?

“How is it I have paid or more credit card surcharges than the items I bought?”

References

Calderón, C., Duncan, R., & Schmidt?Hebbel, K. (2016). Do good institutions promote countercyclical macroeconomic policies?. Oxford Bulletin of Economics and Statistics, 78(5), 650-670.

Kagel, J. H., & Roth, A. E. (Eds.). (2016). The Handbook of Experimental Economics, Volume 2: The Handbook of Experimental Economics. Princeton university press.

Rigby, E., & Hatch, M. E. (2016). Incorporating Economic Policy Into A ‘Health-In-All-Policies’ Agenda. Health Affairs, 35(11), 2044-2052.