ECO/561

PLEASE PROVIDE ANSWER TO THE QUESTION WITH AN EXAMPLE

3 QUESTION DUE 8/18/2016

1. As a follow up on our discussion over the first two weeks on government intervention, and now with the addition of our discussion on market structures, let's take another look at an example we used previously.  With current stiff competition among the wireless communication servers such AT&T, Verizon , Sprint, T-Mobile, Virgin and so on, a few years ago AT&T made a bid to buy T-Mobile to gain more broadband spectrum coverage.  After many months of lobbying this deal was dropped because of government regulation from the Department of Justice regarding antitrust laws. "Antitrust law also referred to as "competition laws" are statutes developed by the US Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy (Investopedia, 2013)."  If the deal went through, AT&T would have a bigger share of the communication market that would make AT&T a large player in this market. This may translate into a disadvantage to the consumers because this sizable power may be able to dictate prices. On these points, DOJ and FCC felt that AT&T would be in violation of the antitrust law.

AT&T's history as being a monopoly stems from years ago when it acquired Bell companies for the long distance communications. From a business point of view, one could argue that the antitrust law discriminates successful businesses and rewards the inefficiencies of smaller companies.  Is it right for the government to step in?   Isn't the government supposed to protect consumers?  Is this a protection or is this government intervening where it doesn't need to be?  

"AT&T drops $39 Billion bid to buy T-Mobile USA" N. Leske. (19 Dec. 2011) Reuters. Retrieved from: http://www.reuters.com/article/2011/12/19/us-att-t-mobile-idUSTRE7BI1YZ20111219

"What is antitrust law?" Retrieved from: http://www.investopedia.com/ask/answers/09/antitrust-law.asp

2.  This video explains the differences in the four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition, which does not exist in today's economic environment, consists of many sellers each having a small market share and no differentiation. Monopolistic competition has many firms with a small market share, has some differentiation, and is able to set prices some examples.  The oligopoly structure is described as having less than 10 companies that influence each other, have a high entry and exit barrier.  Monopolies exist when there is only one supplier, no competition and are predominately found in government controlled markets.

Hopefully after the video you will have a better grasp of various market structures and be able to apply this to the company you work for, its competitors, the industry, where you shop, etc

Microeconomics: Understanding the market system [Video file]. (2011). In Films On Demand. Retrieved April 13, 2016, from www.fod.infobase.com/PortalPlaylists.aspx?wID=18566&xtid=48959

3.

I enjoyed the presentation examples very informative. In an economic circumstance in which the price of a product will have no result on the supply. In a perfectly inelastic circumstance heedless of the total of several quantities of a product in the place devoted to sale the prices of the product stays the same. The perfectly inelastic is the contrary of the perfectly elastic.

According to McConnell, Brue, and Flynn, (ch.6, p's. 136-137, 2009), if a specific change in price produces a smaller percentage in quantity demanded demand is inelastic. The separation of elastic and inelastic demands can happen when there is a percentage change in price that gives a percentage change in the quality demanded is the same.

 For example, the author of the NCBI, examines the price elasticity of demand for bid, cigarettes and leaf tobacco at the national level using a representative cross-section of households. The research study discovered that own-price elasticity estimates of different tobacco products in India ranged between −0.4 to −0.9, with bid (an indigenous hand-rolled smoked tobacco preparation in India) and leaf tobacco having elasticities close to unity. Cigarettes were the least price elastic of all. With some assumptions, it is shown that the tax on bid can be increased to Rs. 100 per 1000 sticks compared with the current R's. 14 and the tax on an average cigarette can be increased to R's. 3.5 Per stick without any fear of losing revenue, according to (NCBI, 2008). 

 Refrences:

 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (20 Th Ed.). Boston, MA: McGraw-Hill Irwin

 The U.S. National Library of Medicine National Institutes of Health John, R. M. (2008). Price Elasticity Estimates for Tobacco Products in India. Health Policy and Planning, 23(3), 200-209. http://doi.org/10.1093/heapol/czn007

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2800993/