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(Theories of Regulation) Why do producers have more interest in government regulations than consumers do?

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1. (Theories of Regulation) Why do producers have more interest in government regulations than consumers do?
Producers are involved in the business of production of their produce, delivering the produce to the market, employing marketing strategies for the produce to be sold to the final consumer. On the other hand, consumers are involved in acquisition and consumption of the produce. The government regulates the production of given products and also may ban the product out of its jurisdiction. As such, producers are usually more concerned about the regulations as they affect their operations, whereas consumers of the products have no particular interest as the regulations do not affect their livelihood. Therefore, this is the cause of the difference in interest in government regulations.
a. Compare and contrast the public-interest and special-interest theories of economic regulation. What is the capture theory of regulation?
The public interest and individual interest theories of regulation are based on the fact that regulations are put forth to protect a certain party. The public interest theory of regulation stipulates that regulations are put forth by a particular authority to protect the public. On the other hand, the special interest theory of economic regulation specifies that an industry may prefer a regulated environment to unregulated one due to several reasons. One of the reasons is that under regulation a firm feels safe due to the stability of the business. This is so as some regulations may restrict other firms from entering the market, thus, eliminating potential completion. The capture theory of regulation suggests that regulations may be put forth to favor a certain producer who have the power to influence the decisions made by the regulatory body.
b. Which theory of regulation explains why the massive fraud of Bernie Madoff went undetected for years?
The capture theory of regulation best explains why the massive fraud of Bernie Madoff went undetected for years. This is because the Madoff family was well connected, as they had access to Washington legislators and regulators. Additionally, to this access Bernie Madoff was among the Board of Directors of the Security Industry Association and his brother also was one of the directors in the Securities Industry and Financial Market Association. With these affiliations, the massive fraud was able to take place and stayed unnoticed as Bernie Madoff had the influence over the regulatory authorities. As such, the capture theory regulation is ideal.
2. (Origins of Antitrust Policy) Identify the type of anticompetitive behavior illustrated by each of the following:
a. A university requires buyers of season tickets for its basketball games to buy season tickets for its football games as well.
-Tying contracts
b. Dairies that bid on contracts to supply milk to school districts collude to increase what they charge.
-Price fixing
c. The same individual serves on the boards of directors of General Motors and Ford.
-Interlocking directory
d. A large retailer sells merchandise below cost in certain regions to drive competitors out of business.
-Predatory pricing
e. A producer of soft drinks sells to a retailer only if the retailer agrees not to buy from the producer’s major competitor.
-Exclusive dealing
3. (Distribution of Costs and Benefits) Suppose that the government decides to guarantee an above-market price for a good by buying up any surplus at that above-market price. Using a conventional supply-demand diagram, illustrate the following gains and losses from such a price support:

(source: Khan Academy)

D- is the demand curve
S- is the supply curve
P1- is the price at market equilibrium
Q3- is the quantity at market equilibrium
a. The loss of consumer surplus
With consumer surplus, the suppliers will not be able to provide the consumer with the product at a higher cost. This is because the surplus is bought up by the government at that above-market price. As such, there will not be any movement along the supply curve.
b. The gain of producer surplus in the short run
Since the government has guaranteed the suppliers of buying surplus at the above-market price. Any instance of producer’s surplus is advantageous to the producers since they will not have to reduce their prices as the government will buy its produce.
c. The cost of running the government program (assuming no storage costs)
The cost of running the program is relatively high since the government will have to buy the supplier products in instances of excess supply at the above market price and yet it will have to sell it at a reduced price.
d. What is the total cost of the program to consumers?
The total cost of the program is equal to the amount of surplus bought by the government at above market price less the market price.
e. Are the costs and benefits of the support program widespread or concentrated?
The cost and benefits of the support program are widespread since all the stakeholders in the trade enjoy the benefits and incur the cost.

4. (Median Voter Model) In a single-issue majority vote, such as the TV example in this chapter, does the median voter always get his or her most preferred outcome?
In a single issue majority vote, the median voter does always get his or her most preferred outcome. This is because they do not take an extreme position on the subject matter. They thus take their position and consider the one that they are opposed to. Their votes are usually considered as important. Per se, when they vote they usually get their preferred outcome although not wholly.
5. (Representative Democracy) Major political parties typically offer “middle of the road” platforms rather than take extreme positions. Is this consistent with the concepts of the median voter and rational ignorance discussed in this chapter?
By preferring the middle of the road platform rather than the extreme position is in line with the concept of median voter and rational ignorance. In the concept of the median voter, the most important vote is the plus one above fifty percent of the registered voter, as it is considered as representative. As such, in politics politicians do not associate themselves with an extreme position as they like to be in the middle of the political spectrum. Although, an individual may be a Democrat he or she may consider a middle position where he sides a little bit on the liberal side.
6. (Resolving the Common-Pool Problem) Why have authorities found it so difficult to regulate the fishing catch in the open ocean to allow for a sustainable yield?
Catching fish in the open ocean is an important activity in a countries economy. This is because it leads to the creation of jobs and also increases governments’ revenue. However, as a natural resource the fishing activity should be sustainable to cater for the future generation. This has made authorities to try to regulate the fishing catch, but their efforts have been fruitless. The reason for the difficulty associated with the regulation is that if the limit the time fishermen catches fish in the open ocean, the fisherman will strive to maximize their catch within a limited time. As such, this will lead to catching the same amount of fish at a shorter time and also they will not be considering the size of fish to be caught as time is a factor.
7. (External Costs with Variable Technology) Think of an industry that pollutes the water and has access to variable technology for reducing that pollution.
Graphically illustrate and explain the impact of each of the following, other things constant, on the optimal level of water quality:

(source:Degremont-industry.com)
a. New evidence is discovered about a greater risk of cancer from water pollution.
When new evidence is discovered about the greater risk of cancer from water pollution, the organizations in the industry will mobilize their resources to ensure that the rate of water pollution is drastically reduced to manageable levels. This may include coming up with research programs that may look on to ways to reuse the water used in the manufacturing process so that the water could not be released to the outside world, therefore, eliminating the possibility of the neighboring community being affected. If there is no way of disposing or reusing the water, the organization will provide the nearby community with alternative sources of water.
b. The cost of pollution-control equipment increases.
When the cost of pollution-control equipment increases, organizations in the industry will need to maximize its profits, so that they can be able to purchase the pollution-control equipment. This may be achieved by entering into new markets and developing new products and services. Additionally, the firm may seek for partnership with a governmental or non-governmental organization so that they may buy the equipment as a unit. If the above is not possible firms in the industry may come up together and research on an economical technology to control pollution. These initiatives will greatly improve the water quality.
c. A technological improvement reduces the cost of pollution control.
When a technology that is used in controlling water pollution is improved so much so that the cost also reduces, the impact on water quality is positive. This is because many organizations in the industry will adopt this new technology as it reduces the cost of corporate social responsibility. Additionally, firms that did not have the ability to undertake the previous expensive pollution control technique will also join this initiative. The result of this is an improved water quality.
8. (Official Poverty Level) Although the poverty rate among single mothers has decreased since 1960, the number of poor children from such families has more than doubled. Explain.
The poverty rates among households that are dependent on female earners are at a high. However, since the early 1990s the trend of increased poverty among these households has been reducing while the number of these families has been rocketing. Per se, compared to the 1960s the percentage of births to single mothers is five times high. This shows that the number of children who are raised up in female dependent households has increased. Additionally, with the knowledge that the female householders are responsible for a great increase in the number of poor families, it is evident that the number of poor children from such families has greatly increased.
9. (Income Differences) List some reasons why household incomes differ. Which factors are the most important?
Family structure: the structure of families differs from one household to another. Families that consist of two parents and one earner have low incomes compared to those who have two parents and two earners. Of these factors, the family structure is the most important as it dictates the total income generated by the household.
Technology: in the recent part technological advancement has been experienced in many societies. This advancement has led to the creation of jobs that require skilled labor. As such, households with individuals who are professionals have more income compared to that with individuals with no skills.
Globalization: with globalization traders have maximized their potential with the growing market. Households who depend on the global market and not the local market are likely to have more income compared to those who depend on the local market to sell their products.
Rights in property: these rights include that of maintaining, selling, transferring and modifying what one owns. The amount of property that one owns depends on the investments that he or she has undertaken. As such, there is a difference in income between households.
10. (Disincentives) How does the implicit tax on earned income (in the form of lost benefits from government assistance programs as earned income increases) affect work incentives? How do some people avoid the implicit tax?
By just working an individual is not assured of having a good lifestyle and decent income. This is because as one’s income increases through working the benefits that he or she enjoyed are lost. As such, the implicit tax on the earned income makes working to be less attractive. To avoid this implicit tax that eliminates individuals from the government assistance programs, most people ensure that they get jobs which earn them a certain amount of money that does not eliminate their benefits or jobs that pay them well but, on the other hand, the payment does not involve any paperwork.

Work Cited
Arnold, Roger A. Economics. Cincinnati, Ohio: South-Western College Pub., 2001. Print.
Degremont-industry.com,. ‘Refining & Petrochemicals Industry Solutions For Water And Wastewater Treatment – Degremont Industry’. N.p., 2015 – Research Paper Writing Help Service. Web. 6 Dec. 2015 – Research Paper Writing Help Service.
Economicshelp.org,. ‘Diagrams For Supply And Demand | Economics Help’. N.p., 2009. Web.
6 Dec. 2015 – Research Paper Writing Help Service.

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