BUS5POE Assessment: Public Policies and Microeconomic Regulation

This assignment delves into public policies and microeconomic regulation, addressing Ronald Reagan's view on government intervention in the economy and its impact on economic outcomes and people's well-being. It identifies key issues such as wealth disparity, healthcare access, and the role of government in providing public goods and regulating harmful consumption. The analysis connects economic theory to policy by examining natural monopolies and different approaches to regulating utilities like electricity, gas, and road networks, with a focus on cost-plus regulation versus price cap regulation. The assignment also explores the 'no surcharge' policy on credit cards and its implications. Critical thinking and reflection are demonstrated through the discussion of universal healthcare and questions regarding resource allocation and compensation for banking services. The document concludes with a personal reflection on credit card surcharges.

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.

The other method is through price cap regulation where the regulation sets a maximum price
which can be charged by the company. According to Prof King, the cost-plus regulation is more
efficient. In my view I agree with Prof King, since the cost plus regulation allows the
manufacturer to still make a profit on the product or service provided.
For example, in the case of gas, if it is charged at 2 dollars per liter, and the cost of production is
1 dollar per liter, the 1 dollar per liter remains as profit for the company. In the case of a price
cap, the price allowed will be 1.5 dollars and the cost of production is 1 dollar, it will lead to a
profit of 0.5 dollars per liter which is lower than that in the cost plus regulation price setting
(Kagel & Roth, 2016).
4) Is Prof King an advocate of the ‘no surcharge’ policy on credit cards? Outline his
argument and attempt to apply relevant economic theory if you can. Then go to
www.accc.gov.au/business/pricing/displaying prices and express your views on the current
regulation of credit card surcharges as outlined there.
According King the no surcharge policy should be affected since it unfairly makes someone
incur higher costs for the purchase of a good. The regulation says that the credit card surcharge
should not be excessive. I think that the definition of excessive should be defined to avoid
ambiguity.
CRITICAL THINKING & REFLECTION

5) Write down one idea discussed in the interview that you found new or interesting, or
that you disagree with, and explain why.
I agreed with his claim that there should be universal health care. This ensures that both the
wealthy and the less wealthy individuals have quality access to healthcare since it is not a
preserve of the rich.
6) Write down three good questions about any of the topics covered in the interview that
you would ask Prof King if you had the chance.
Does universal health care mean equal quality of healthcare?
Doesn’t government regulation get in the way of resource allocation, ie since the rich have more
they should have more opportunity to access resources?
How will the banks providing the access to cash obtain compensation for the use of those
services?
7. “How is it I have paid or more credit card surcharges than the items I bought?”
References
Calderón, C., Duncan, R., & Schmidt‐Hebbel, K. (2016). Do good institutions promote
countercyclical macroeconomic policies?. Oxford Bulletin of Economics and
Statistics, 78(5), 650-670.
Kagel, J. H., & Roth, A. E. (Eds.). (2016). The Handbook of Experimental Economics, Volume
2: The Handbook of Experimental Economics. Princeton university press.

Rigby, E., & Hatch, M. E. (2016). Incorporating Economic Policy Into A ‘Health-In-All-
Policies’ Agenda. Health Affairs, 35(11), 2044-2052.