The Role Of Government (part two)

1- Intervention takes four forms:
   3- Fostering competition.
   4- Contributing to economic stability.

3- Fostering competition.

- U.S applied what's called pure competition " in which no single firm or group & firms in an industry is large enough to influence prices & there by distort the workings of the free-market system"

- But pure competition not working in all type of industry; for example: it is working in small industries like dry cleaning because firms of this industry are small independent & operating on a local level.

- But in auto industry firms aren't small. An industry of this type dominated by a few producers which called oligopoly " market dominated by a few products" the gov has the power to prevent combinations of firms that would reduce competition & lead to oligpolistic conditions in an industry because these companies may determine the price of the product with each others.

- Restrictions are also imposed to prevent the development of a monopoly in any particular industry or market. Monopoly " market in which there are no direct competitors so that one company dominates) they are prohibited by federal antitrust law.

4- Contributing to economic stability.

- The economy isn't stability system because of some factors such as technological break through, changes in investment patterns, shifts in consumer attitudes, world events & basic economic forces.

- The period of expansion have lasted about 3 years, but the period of contraction or recession "period during which national income & production all fall" have averaged 11 months.

- The fluctuation of business cycle "fluctuation in the rate of growth that an economy experiences over a period of several years"

- The gov makes two actions: fiscal policy and monetary policy.

- Fiscal policy "use of gov revenue collection and spending to influence the business cycle"

- monetary policy " actions taken by the federal reserve board to influence the economy by controlling the money supply by increase or decrease interest rates"

- People in the United States have encouraged gov to borrow & spend money in order to keep businesses in operation & people employed.

- Inflation "economic condition in which prices rise steadily throughout the economy. But disinflation "economic condition in which the rate of inflation declines. The main influence on inflation & disinflation is monetary policy.

- The prices in the overall economy tend to increase years after year but not all industries follow this tend. For example computer industry, prices tend to drop. Pet food is an other good example. Over the decade from 1984 H.J.Hienz pet products cut the prices it charged retailers by 22%.

- In contrast, prices in a particular industry can also increase faster than average. In the petroleum industry, for example, the organization of petroleum exporting countries (OPEC) can decide to limit production so prices the world over are affected by this cartel " association of producers that attempts to control a market & keep prices high by limiting output & dividing market shares among the members"

                                                                   To be continued

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