The Effects of Government Intervention in Different Market Structures

Antitrust Policy

Policies designed to promote competition and prevent monopolies.

Antitrust Laws

• Lawsuits

• Price controls

• Subsidies

Non Price Regulations

works like taxes, they ensure competition/environmental protection/health and safety

price ceiling

sets minimum price

• Perfect competition: causes shortage

• Monopolistic competition: becomes MR curve, price and output decreases

• Monopoly: price and output reduction & potential shortage

price floor

sets maximum price

• Perfect competition : leads to surplus

• Monopsony : wages go up and workers go up

• Monopoly: wages go up and less employment

lump sum tax effects on graph

only increase ATC; won’t change output level

per unit tax effects on graph

Per unit tax: increase MC, ATC, and AVC

• Perfect competition: price stays the same; reduced output

• Monopolistic competition: price increases, output decreases

• Monopoly: price increase, output decreases

Lump sum subsidy

• gives benefit no matter how many units

• profit increases

• quantity doesn’t change

• deadweight loss doesn’t change

per unit subsidy effects on graph

DWL eliminated, MC, ATC, AVC decreases, output increases

• Perfect competition: price doesn’t change

• Monopolistic competition: price decreases

• Monopoly: Price decreases

forms of govt intervention

• Taxes

• Subsidies

• Price floors/ceilings

• Regulation