by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Is Consumer Behavior Rational in Economics?There is much human behavior that mainstream economists have tended to call “irrational” since it is consistently at odds with economists’ utility maximizing models. The typical response is for economists to brush these...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Imperfect Information Affect Equilibrium Price and Quantity?The presence of imperfect information can discourage both buyers and sellers from participating in the market. Buyers may become reluctant to participate because they cannot determine the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Imperfect information?Every purchase is based on a belief about the satisfaction that the good or service will provide. In turn, these beliefs are based on the information that the buyer has available. For many products, the information available to the buyer...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Regulatory Capture?One difficulty with government price regulation is what economists call regulatory capture, in which the firms that are supposedly regulated end up playing a large role in setting the regulations that they will follow. When the airline...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Price Cap Regulation?Price cap regulation is where the regulator sets a price that the firm can charge over the next few years. A common pattern was to require a price that declined slightly over time. If the firm can find ways of reducing its costs more...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Cost-Plus Regulation? Cost-plus regulation is where regulators calculate the average cost of production, added in an amount for the normal rate of profit the firm should expect to earn, and set the price for consumers accordingly. This method was known as...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Restrictive Practices under Antitrust Law? Antitrust law includes rules against restrictive practices – practices that do not involve outright agreements to raise price or to reduce the quantity produced, but that might have the effect of reducing...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Some Other Approaches to Measuring Monopoly Power in an Industry? Both the four-firm concentration ratio and the Herfindahl-Hirschman index share some weaknesses. First, they begin from the assumption that the “market” under discussion is well-defined, and...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Cooperation Affect the Kinked Demand Curve? Because oligopolists cannot sign a legally enforceable contract to act like a monopoly, the firms may instead keep close tabs on what other firms are producing and charging. Alternatively, oligopolists may choose to...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How to Force Cooperation in a Prisoner’s Dilemma? The way out of a prisoner’s dilemma is to find a way to penalize those who do not cooperate. Perhaps the easiest approach for colluding oligopolists, as you might imagine, would be to sign a contract with each other...
