Public Policies and Microeconomic Regulation

Course
Name
Institution Affiliation

On Public Policies and Microeconomic Regulation
In this case, the statement by Ronald Regan should be taken to mean that the government should
interfere in the economy as it ought to. In the first place the government intervention can be used
to protect the consumers in case the prices are too high and predatory. In the case of suppliers,
the government intervention using subsidies and incentives can stimulate production and in turn
crate jobs in case the price was previously too low. In other cases, government intervention is
required in case there is a public good required which may not be provided for by the firms such
as roads, railways and social amenities such as hospitals and water. Sometimes the government
intervention is good to protect consumers against harmful consumption of certain goods such as
alcohol and cigarettes. Despite this usefulness of government intervention, it may sometimes be
less useful in the occasion where the government decides to put a price ceiling which may lock
out production of certain products. It may also be disadvantageous when the government decides
the quantities of a product that should be produced instead of the market selecting which may
lead to demand deficits or surpluses (Rigby & Hatch, 2016).
IDENTIFYING KEY ISSUES AND SUMMARIZING THE BIG PICTURE
 In the interview, Professor King talks about various economic policies and their
implications.
 He discusses how the gap between the wealth and the poor is encouraged through the tax
system in the tax policies that are in place.

 For example, in healthcare, the wealthy receive both Medicare and private insurance
while the poor receive only Medicare.
 He proposes that the economic policies should not punish people for being poor but
instead make it so such that if the wealthy require additional services or social amenities
 They should pay for it while the less wealthy should be able to access the social amenities
at an equitable level.
CONNECTING ECONOMIC THEORY TO POLICY
2) Natural Monopoly
A natural monopoly occurs when there are high fixed costs that are involved in the stat up costs
of the business in a particular industry such as unique raw materials or technology (Calderon &
& Schmidt‐Hebbel, 2016).
Natural monopolies should be regulated since the providers may take advantage of the consumer
demand and charge higher prices.
3) What are the possible approaches of the government towards ownership and regulation
of utilities such as electricity, gas, and road networks? What is Prof King’s view on which
approach is the most efficient? What is your view? Use data or examples from the internet
to support your answer.
One way of regulating monopolies is cost plus regulation where the average cost of production is
added with an added profit that the firm is expected to earn and then the price is set accordingly.