Antitrust Policy and Business Regulation

Read this chapter to learn about how government policies have been in place to curve the power of imperfect competition. Also identify what the US has used regulations to protect consumers and limit the excesses of businesses via antitrust policies.

4. Regulation: Protecting People from the Market

4.2. Answer to Try It! Problem

Deregulation of the airline industry led to sharply reduced fares and expanded output, suggesting that supply increased. That should significantly increase consumer surplus. Specifically, the supply curve shifted from S1 to S2. Consumer surplus is the difference between the total benefit received by consumers and total expenditures by consumers. Before deregulation, when the price was B and the quantity was Q1, the consumer surplus was BCD. The lower rates following deregulation reduced the price to consumers to, say, F, and increased the quantity to Q2 on the graph, thereby increasing consumer surplus to FCG.

answer to try it