Monopoly and Antitrust Policy
laws that give government the power to block certain mergers, and even in some cases to break up large firms into smaller ones
antitrust laws
a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”
externality
when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it
nonexcludable
an employer will never pay a worker more than the value of the worker's marginal productivity to the firm
first rule of labor markets
a flow of money a person receives from labor, often measured on a monthly or an annual basis
income
a situation where either the buyer or the seller, or both, are uncertain about the qualities of what they are buying and selling
imperfect information
a measure of the uncertainty of that project’s profitability
risk
groups that are small in number relative to the nation, but well organized and thus exert a disproportionate effect on political outcomes
special interest groups
when one country has more resources, more productive resources, or a natural endowment to produce a good compared to another country; when a country can produce more of a good compared to another country
absolute advantage
government policies to reduce or block imports
protectionism
the percentage of total sales in the market
market share
costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution
social costs
even when one person uses the good, others can also use it
nonrivalrous
active efforts by government or businesses that give special rights to minorities in hiring, promotion, or access to education to make up for past discrimination
affirmative action
when one group receives a disproportionate share of total income or wealth than others
income inequality
method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who suffers significant financial damage from an event covered by the policy
insurance
refers to how easily one can exchange money or financial assets for a good or service
liquidity
the theory that rational people will not vote if the costs of becoming informed and voting are too high or because they know their vote will not be decisive in the election
rational ignorance
the ability of an individual, company, or country to produce a good or service at a lower opportunity cost than another
comparative advantage
economic agreement between countries to allow free trade between members
free trade agreement
when the regulator sets a price that a firm cannot exceed over the next few years
price cap regulation
When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure
market failure
good that is nonexcludable and non-rival, and thus is difficult for market producers to sell to individual consumers
public good
negotiations between unions and a firm or firms
collective bargaining
the situation of being below a certain level of income one needs for a basic standard of living
poverty
when groups with inherently higher risks than the average person seek out insurance, thus straining the insurance system
adverse selection
how much a project or an investment is expected to return to the investor, either in future interest payments, capital gains, or increased profitability
expected rate of return
spending that benefits mainly a single political district
pork-barrel spending
when a country can consume more than it can produce as a result of specialization and trade is said to have experienced...
gain from trade
laws that block imports sold below the cost of production and impose tariffs that would increase the price of these imports to reflect their cost of production
anti-dumping laws
when regulators permit a regulated firm to cover its costs and to make a normal level of profit
cost-plus regulation
a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax
pollution charge
those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided
free rider
a labor market where there is only one employer
monopsony
antipoverty programs set up so that government benefits decline substantially as people earn more income—as a result, working provides little financial gain or incentive to work.
poverty trap
a group that shares roughly the same risks of an adverse event occurring
risk group
a firm's stock, divided into individual portions
shares
theory that politicians will try to match policies to what pleases the median voter preferences
median voter theory
how a good is produced in stages
value chain
ways a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products
nontariff barriers
when two formerly separate firms combine to become a single firm
merger
laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies one must use
command-and-control regulation
beneficial spillovers to a third party or parties
positive externalities
actions based on the belief that members of a certain group or groups are in some way inferior solely because of a factor such as race, gender, or religion
discrimination
the group of government programs that provide assistance to people at or near the poverty line
safety net
when people have insurance against a certain event, they are less likely to guard against that event occurring
moral hazard
a firm that has sold stock to the public, which in turn investors then can buy and sell
public company
the situation in which groups of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor
logrolling
taxes that governments place on imported goods
tariffs
the argument that there are compelling national interests against depending on key imports from other nations
national interest argument