PRINCIPLES OF ECONOMIC MANAGEMENT DTUE301

Final exam: 60mim (no MCQs), closed book, written exam

- Micro (40%):S-D
- Macro (60%): IS - LM, AD - AS
Theories (arguments)
- Practice (minicases)
- Facts (date, graphs, figures): newsaper, WB, OECD,
- Research (Journal): scientists's ideas

Lecturer: Dr. Nguyen Quynh Huong

Department: Economics and Law
Email: [email protected]

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PRINCIPLES OF ECONOMIC MANAGEMENT
DTUE301: Objectives

The module equips basic knowledge and general theory of economics,

management and economic management; the development process of
economic management theories, rules, mechanisms for using and applying
rules in economic management.
In particular, the module will introduce students to economic management
functions and equip students with principles of economic management
activities in macro- and micro-economics.

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PRINCIPLES OF ECONOMIC MANAGEMENT DTUE301

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Courage to act

Rich with detail of the decision-making process in Washington and

indelible portraits of the major players, The Courage to Act recounts and
explains the worst financial crisis and economic slump in America since the
Great Depression, providing an insider’s account of the policy response.

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PRINCIPLES OF ECONOMIC MANAGEMENT DTUE301

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Who says elephants can’t dance

In 1990, IBM had its most profitable year ever. By 1993, the computer
industry had changed so rapidly the company was on its way to losing $16
billion and IBM was on a watch list for extinction – victimized by its own
lumbering size, an insular corporate culture, and the PC era IBM had itself
helped invent.
Gerstner took hold of the company and demanded the managers work
together to re-establish IBM’s mission as a customer-focused provider of
computing solutions. Moving ahead of his critics, Gerstner made the hold
decision to keep the company together, slash prices on his core product to
keep the company competitive, and almost defiantly announced, ”The last
thing IBM needs right now is a vision”.

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Course Content

1 Lecture 1,2,3: Overview of economics and economic management

2 Lecture 4,5,6,7: Economic management theories

3 Lecture 8,9,10,11: Economic management functions

4 Lecture 12,13,14,15: Principles of economic management

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Textbook

Michael R. Baye (2010), Managerial economics business strategy,

McGraw-Hill
Campbell McConnell (2012), Economics: Principles, Problems and
Policies, McGraw-Hill Education
N. Gregory Mankiw (2008), Principles of economics , 7th edition,
Cengage Learning
William B. Walstad (2009), Study guide use with McConnell, Bruce
Flynn Macroeconomics, McGraw-Hill Education

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Lecture 1: Overview of Economics and Economic
Management

Economic concept
The role of the economy
Dialectical relationship between economy and culture and politics

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Economic concept

What is economics?
Why do we study economics?
What is the difference between Microeconomics and
Macroeconomics?
What is economic management?

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Economics

Economics is the study of scarcity and how it affects the use of resources,
the production of goods and services, the growth of production and
well-being over time, and many other important and complicated issues
that affect society.

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What is economics all about?

Economics is the study of how things are made, moved around, and used.
It looks at how people, businesses, governments, and countries choose to
use their resources. Economics is the study of how people act, based on
the idea that people act rationally and try to get the most value or
benefit.
Economics is the study of how work and business are run. Since there are
many ways to use human labour and many ways to get resources, it is the
job of economics to figure out which ways produce the best results.

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What is economics all about?

Economics can be broken into two parts: macroeconomics, which looks at

how the economy works, and microeconomics, which looks at how people
and businesses work.

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A connection between microeconomics and
macroeconomics

These two areas of economics use very different theories, models, and
research methods.
Microfoundation of Macroeconomics: The sum of all
microeconomic events makes up an aggregate macroeconomic
event.

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Economics vs Business

Business Definition Business refers to an enterprising entity or

organization that carries out professional activities. They can be
commercial, industrial, or others.
For-profit business entities do business to earn a profit, while
non-profit ones do it for a charitable mission.
Business ownership includes partnerships, sole proprietorships,
corporations, etc.
Businesses can be small-scale or large-scale. Some of the biggest
businesses in the world are Amazon and Walmart.

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Types of Businesses

Businesses are organized per some type of hierarchy or bureaucracy. In

these businesses, the positions have a customary role and responsibility. As
per business definition, we see that different types of businesses.
Law 59/2020/QH14 Enterprises in Vietnam

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Types of Businesses

Sole Proprietorship: In this kind of business, a single person owns

and operates the business. There isn’t any kind of legal separation
between the owner and business. Thus, the onus of legal plus tax
liability is on the owner.
Partnership: As the name suggests, it is a business where two or
more people run it together. The partners bring in resources and
money, and then the shares in the profit or loss are divided amongst
them.

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Types of Businesses

Corporation: In this business, a group of individuals act together as

a single entity. The owners in this business are called shareholders.
They discuss their views on the common stock of the corporation.
There are unfavourable taxation rules in a corporation for the business
owners.
Limited Liability Company (LLC): It is not as old as the other
business structures. It merges a partnership’s pass-through taxation
benefits and a corporation’s limited liability benefits. Different Sizes
of Business

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Lecture 2: Overview of economic management

Concepts of management and economic management

Features of economic management
Roles of economic management

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The concepts of management and economic management

Managerial economics is a branch of economics involving the

application of economic methods in the organizational
decision-making process.
Managerial economics involves the use of economic theories and
principles to make decisions regarding the allocation of scarce
resources. It guides managers in making decisions relating to the
company’s customers, competitors, suppliers, and internal operations.

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Government Intervention?

Invisible hand - laissez-faire (classical economics, flourished in the late

18th and early-to-mid 19th century in Britain)
Visible hand
Mixed model

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Invisible hand (Adam Smith, 1776)

The term ”invisible hand” first appeared in Adam Smith (1776), The
Wealth of Nations, to describe how free markets can incentivize
individuals, acting in their own self-interest, to produce what is societally
necessary.Actually, Smith already identified the disadvantages of the
”invisible hand”.

https : //www .rrojasdatabank.info/Wealth − Nations.pdf

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Does specialization create the Wealth of Nations?

“One man draws out the wire, another straightens it, a third cuts it, a
fourth points it, a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put it on is a peculiar
business, to whiten the pins is another; it is even a trade by itself to put
them into paper.”
Smith (1776) The wealth of nations

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How about the government regulations?

”Such regulations may, no doubt, be considered as in some respects a

violation of natural liberty. But these exertions of the natural liberty of a
few individuals, which might endanger the security of the whole society,
are, and ought to be, restrained by the laws of all governments, of the
most free, as well as the most despotical.”
Smith (1776) The wealth of nations

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Visible hand (John Keynes, 1930s)

Visible hand is an economic concept describes the replacement of

the regulatory function of the market mechanism by government
intervention.
In economics, the ”visible hand” is generally considered to be the
macro-fiscal policy of John Keynes in 1930s as a remedy for the
shortcomings of Adam Smith’s ”invisible hand” and advocated
government intervention in the economy.
John Keynes called the problems of free market ”market failure” and
introduced the idea of adding a ”visible hand” to Smith’s ”invisible
hand” to strengthen the regulation of the market economy.
The General Theory of Employment, Interest and Money (Keynes,
1936)

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Institutions as the Fundamental Cause of Long-Run
Growth (Acemoglu, Johnson, and Robinson, 2004)

Economic institutions:
encouraging economic growth emerge
when political institutions allocate power to groups with interests in
broad-based property rights enforcement,
when they create effective constraints on power-holders, and when
there are relatively few rents to be captured by power-holders.

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Why are some countries much poorer than others?
Traditional neoclassical growth models, following Solow (1956), Cass
(1965) and Koopmans (1965), explain differences in income per
capita in terms of different paths of factor accumulation.
In these models, cross-country differences in factor accumulation are
due either to differences in saving rates (Solow), preferences
(Cass-Koopmans), or other exogenous parameters, such as total
factor productivity growth.

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Why are some countries much poorer than others?
More recent incarnations of growth theory, following Romer (1986)
and Lucas (1988), endogenize steady-state growth and technical
progress, but their explanation for income differences is similar to that
of the older theories.
For instance, in the model of Romer (1990), a country may be more
prosperous than an- other if it allocates more resources to innovation,
but what determines this is essentially preferences and properties of
the technology for creating ‘ideas’.

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Does the Government Create Wealth?

Governments play a critical role in the wealth-creating process by enforcing

property rights and contracts—legal mechanisms that facilitate voluntary
transactions

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The features of economic management

Economic management is the art and science.

Determining whether a policy is (managed) well or badly requires
analyzing all of its effects — the unintended as well as the intended
effects.
The one lesson of economics: The art of economics consists in
looking not merely at the immediate but at the longer effects of any
act or policy; it consists of tracing the consequences of that policy
not merely for one group but for all groups. (Henry Hazlitt,
Economics in One Lesson, Crown, 1979)

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Government as an economic manager

The government economic functions contain the micro and macro

regulation and control ability of the economy, the need to keep track
of economic development direction at the same time, the development
of the economy pointing in the direction of the most steady and
rising, the more need of the country’s internal economy form at any
time to observe, in a timely manner to correct errors trend.
In a mature and stable economic system, the government is not only
the custodian of public property, but also a good entrepreneur and a
sociologist.

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Economic Regulations

Economic regulation describes the laws that the government initiates

to control and regulate private corporations and influence
commodities prices.
The government controls the economy through entry controls to
determine who can enter the market. It also influences economic
activities through monetary and fiscal policies.
Government’s social and economic regulations are often related with
each other. Social regulation ensures the protection of public interests
and social cohesion. Economic regulation ensures efficiency by
curbing market failure and managing the economy effectively.

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Targets of Economic management by the Government

Quick and Sustainable growth

Social equality
Macroeconomics stability
The purpose of regulations is to ensure a safe space for the environment
and individuals as well. When there are regulatory measures to influence
operations in an industry, discrimination and inequality are eliminated
hence promoting safety and security. Regulations are also essential in
enhancing quality control.

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The features of economic management: 2 faces

Techniques and Methods: how to manage

Social and Economic regulations: what to manage

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The roles of economic management

Design development plan/strategy for the country including control

and check.
Supply public goods and public services
Operate legal system and create favourable business environment for
development and equality
Regulate the economy to reduce the market failures.
Social and Economic regulations are connected to maintain equality

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Lecture 3: Contents of economic management science

downside of free market

From the Classics to Neo-Classics: Market Failures

1 Monopoly (Introduction to Monopoly and Antitrust Policy)
2 Imperfect information: Information, risk and insurance (What’s the
Big Deal with Obamacare?)
3 Externalities (How Governments Can Encourage Innovation)
4 Public goods (The Role of Government in Paying for Public Goods)

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1. Introduction to Monopoly and Antitrust Policy

Antitrust laws
Laws that protect consumers from businesses that are trying to take
advantage of them and allow all similar businesses a fair chance to
represent themselves and grow.

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 Eg: acqisition of Uber and Grab
-> No laws -> hard to calculate market share

Antitrust policy
Cooperate Mergers
Calculate concentration ratios
Calculate the Herfindahl-Hirschman Index (HHI)
Evaluate methods of antitrust regulation

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Cooperate Mergers

A corporate merger occurs when two formerly separate firms combine

to become a single firm.
When one firm purchases another, it is called an acquisition.
An acquisition may not look just like a merger, since the newly
purchased firm may continue to operate under its former company
name.
Mergers can also be lateral, where two firms of similar sizes combine
to become one. However, both mergers and acquisitions lead to two
formerly separate firms operating under common ownership, and so
they are commonly grouped together.

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Cooperate Mergers

Since a merger combines two firms into one, it can reduce the
extent of competition between firms.
Therefore, when two U.S. firms announce a merger or acquisition
where at least one of the firms is above a minimum size of sales (a
threshold that moves up gradually over time, and was at $101 million
in 2022), or certain other conditions are met, they are required under
law to notify the U.S. Federal Trade Commission (FTC).

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Cooperate Mergers

The laws that give government the power to block certain mergers,
and even in some cases to break up large firms into smaller ones, are
called antitrust laws.
Before a large merger happens, the antitrust regulators at the FTC,
the FCC, the U.S. Department of Justice, or other regulatory agencies
can allow the merger, prohibit it, or allow it if certain conditions are
met.
One common condition is that the merger will be allowed if the firm
agrees to sell off certain parts.
divestiture

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Cooperate Mergers

For example, in 2006, Johnson Johnson bought the Pfizer’s

“consumer health” division, which included well-known brands like
Listerine mouthwash and Sudafed cold medicine.
As a condition of allowing the merger, Johnson & Johnson was
required to sell off six brands to other firms, including Zantac®
heartburn relief medication, Cortizone anti-itch cream, and Balmex
diaper rash medication, to preserve a greater degree of competition in
these markets.

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Cooperate Mergers

The U.S. government approves most proposed mergers. In a

market-oriented economy, firms have the freedom to make their own
choices. Private firms generally have the freedom to:
expand or reduce production
set the price they choose
open new factories or sales facilities or close them
hire workers or to lay them off
start selling new products or stop selling existing ones

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The Four-Firm Concentration Ratio

Say that the market for replacing broken automobile windshields in a

certain city has 18 firms with the market shares in Table 11.1, where
the market share is each firm’s proportion of total sales in that
market.
We calculate the four-firm concentration ratio by adding the market
shares of the four largest firms: in this case, 16 + 10 + 8 + 6 = 40.
We do not consider this concentration ratio especially high, because
the largest four firms have less than half the market’s total mkt share.

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The Four-Firm Concentration Ratio

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The Four-Firm Concentration Ratio

A four-firm concentration ratio is a simple tool, which may reveal only part
of the story. For example, consider two industries that both have a
four-firm concentration ratio of 80. However, in one industry five firms
each control 20% of the market, while in the other industry, the top firm
holds 77% of the market and all the other firms have 1% each. Although
the four-firm concentration ratios are identical, it would be reasonable to
worry more about the extent of competition in the second case—where the
largest firm is nearly a monopoly—than in the first.

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Calculate the Herfindahl-Hirschman Index (HHI)

Another approach to measuring industry concentration that can distinguish

between these two cases is called the Herfindahl-Hirschman Index (HHI).
We calculate HHI by summing the squares of the market share of each
firm in the industry.

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Calculate the Herfindahl-Hirschman Index (HHI)

Step 1. Calculate the HHI for a monopoly with a market share of 100%.
Because there is only one firm, it has 100% market share. The HHI is
1002 = 10, 000.
Step 2. For an extremely competitive industry, with dozens or hundreds of
extremely small competitors, the HHI value might drop as low as 100 or
even less. Calculate the HHI for an industry with 100 firms that each have
1% of the market. In this case, the HHI is 100(12 ) = 100.
Step 3. Calculate the HHI for the industry in Table 11.1. In this case, the
HHI is 162 + 102 + 82 + 7(62 ) + 8(32 ) = 744.
Step 4. Note that the HHI gives greater weight to large firms.

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Calculate the Herfindahl-Hirschman Index (HHI)

Step 5. Consider the earlier example, comparing one industry where five
firms each have 20% of the market with an industry where one firm has
77% and the other 23 firms have 1% each. The two industries have the
same four-firm concentration ratio of 80.
However, the HHI for the first industry is 5(202 ) = 2, 000.
While the HHI for the second industry is much higher at 772 +
23(12 ) = 5, 952.
Step 6. Note that the near-monopolist in the second industry drives up the
HHI measure of industrial concentration.

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Calculate the Herfindahl-Hirschman Index (HHI)

Step 7. Review Table 11.2 which gives some examples of the four-firm
concentration ratio and the HHI in various U.S. industries in 2016.
You can find market share data from multiple industry sources. Data in
the table are from: Statista.com (for wireless), The Wall Street Journal
(for automobiles), Gartner.com (for computers) and the U.S. Bureau of
Transportation Statistics (for airlines).

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Calculate the Herfindahl-Hirschman Index (HHI)

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Calculate the Herfindahl-Hirschman Index (HHI)

In the 1980s, the Federal Trade Commission (FTC) followed

these guidelines: If a merger would result in an HHI of less than
1,000, the FTC would probably approve it. If a merger would result in
an HHI of more than 1,800, the FTC would probably challenge it. If a
merger would result in an HHI between 1,000 and 1,800, then the
FTC would scrutinize the plan and make a case-by-case decision.
However, in the last several decades, the antitrust enforcement
authorities have moved away from relying as heavily on measures of
concentration ratios and HHIs to determine whether they will allow a
merger, and instead they carry out more case-by-case analysis on the
extent of competition in different industries.

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New Directions for Antitrust

Because attempting to define a particular market can be difficult and

controversial, the Federal Trade Commission has begun to look less at
market share and more at the data on actual competition between
businesses. For example, in February 2007, Whole Foods Market and Wild
Oats Market announced that they wished to merge. These were the two
largest companies in the market that the government defined as “premium
natural and organic supermarket chains.” However, one could also argue
that they were two relatively small companies in the broader market for all
stores that sell groceries or specialty food products.

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New Directions for Antitrust

Rather than relying on a market definition, the government antitrust

regulators looked at detailed evidence on profits and prices for
specific stores in different cities, both before and after other
competitive stores entered or exited.
Based on that evidence, the Federal Trade Commission decided to
block the merger. After two years of legal battles, the FTC eventually
allowed the merger in 2009 under the conditions that Whole Foods
sell off the Wild Oats brand name and a number of individual stores,
to preserve competition in certain local markets. For more on the
difficulties of defining markets, refer to Monopoly.

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New Directions for Antitrust

This new approach to antitrust regulation involves detailed analysis of

specific markets and companies, instead of defining a market and counting
up total sales.
A common starting point is for antitrust regulators to use statistical
tools and real-world evidence to estimate the demand curves and
supply curves the firms proposing a merger face.
A second step is to specify how competition occurs in this specific
industry. Some possibilities include competing to cut prices, to raise
output, to build a brand name through advertising, and to build a
reputation for good service or high quality.

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New Directions for Antitrust

With these pieces of the puzzle in place, it is then possible to build a

statistical model that estimates the likely outcome for consumers if
the two firms are allowed to merge.
These models do require some degree of subjective judgement, and so
they can become the subject of legal disputes between the antitrust
authorities and the companies that wish to merge.

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2.What’s the Big Deal with Obamacare?

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2.What’s the Big Deal with Obamacare?

In August 2009, many members of the U.S. Congress used their summer
recess to return to their home districts and hold town hall-style meetings
to discuss President Obama’s proposed changes to the U.S. healthcare
system. This was officially known as the Patient Protection and Affordable
Care Act (PPACA) or as the Affordable Care Act (ACA), but was more
popularly known as Obamacare.
The bill’s opponents’ claims ranged from the charge that the changes were
unconstitutional and would add $750 billion to the deficit, to extreme
claims about the inclusion of things like the implantation of microchips
and so-called “death panels” that decide which critically-ill patients receive
care and which do not.

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2.What’s the Big Deal with Obamacare?

What is it that the Affordable Care Act (ACA) will actually do? To
begin with, we should note that it is a massively complex law, with a
large number of parts, some of which the Obama administration
implemented immediately, and others that the government is
supposed to phase in every year from 2013 through 2020.
Three of these parts are coverage for the uninsured—those without
health insurance, coverage for individuals with pre-existing conditions,
and the so-called employer and individual mandates, which require
employers to offer and people to purchase health insurance. Under the
Trump administration, several components of the ACA were repealed
or overhauled, while under the Biden administration (and with the
support of a majority of the population) the ACA has continued as a
major element in provision of health care in the United States.
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2.What’s the Big Deal with Obamacare?
The impact of the Patient Protection and Affordable Care Act has
been a rise in Americans with health insurance. However, due to the
increased taxes to pay for the ACA and the increased deficit spending,
the ACA faces continued opposition. The Trump administration
vowed to repeal it on the campaign trail but no alternative bill has
made its way before congress. Only time will tell if the Affordable
Care Act will leave a legacy or will quickly be swept by the wayside,
jeopardizing the 20 million newly insured Americans.
At the time of this writing, the final impact of the Patient Protection
and Affordable Care Act is not clear. Millions of previously uninsured
Americans now have coverage, but the increased taxes to pay for ACA
and increased deficit spending have created significant political
opposition. Whether or not that opposition eventually succeeds in
overturning the ACA remains to be seen.
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From ObamaCare to TrumpCare: Why You Should Care?

Please compare the two healthcare programs : ObamaCare and

TriumpCare versus HarrisCare.
https://enhancehealth.com/blog/trumpcare-ahca-vs-obamacare-aca/

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3.How Governments Can Encourage Innovation

One way to increase new technology is to guarantee the innovator an

exclusive right to that new product or process. Intellectual property rights
include patents, which give the inventor the exclusive legal right to make,
use, or sell the invention for a limited time, and copyright laws, which give
the author an exclusive legal right over works of literature, music,
film/video, and pictures.

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3.How Governments Can Encourage Innovation

For example, if a pharmaceutical firm has a patent on a new drug,

then no other firm can manufacture or sell that drug for 20 years,
unless the firm with the patent grants permission.
Without a patent, the pharmaceutical firm would have to face
competition for any successful products, and could earn no more than
a normal rate of profit.
With a patent, a firm is able to earn monopoly profits on its product
for a period of time—which offers an incentive for research and
development.
In general, how long can “a period of time” be?

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3.How Governments Can Encourage Innovation
How long is Mickey Mouse protected from being copied?
All patents and copyrights are scheduled to end someday. In 2003,
copyright protection for Mickey Mouse was scheduled to run out.
Once the copyright had expired, anyone would be able to copy Mickey
Mouse cartoons or draw and sell new ones.
In 1998, however, Congress passed the Sonny Bono Copyright Term
Extension Act. For copyrights owned by companies or other entities,
it increased or extended the copyright from 75 years to 95 years after
publication.
For copyrights owned by individuals, it increased or extended the
copyright coverage from 50 years to 70 years after death.
Along with protecting Mickey for another 20 years, the copyright
extension affected about 400,000 books, movies, and songs.
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3.How Governments Can Encourage Innovation

While patents provide an incentive to innovate by protecting the

innovator, they are not perfect. For example:
In countries that already have patents, economic studies show that
inventors receive only one-third to one-half of the total economic
value of their inventions.
In a fast-moving high-technology industry like biotechnology or
semiconductor design, patents may be almost irrelevant because
technology is advancing so quickly.

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3.How Governments Can Encourage Innovation
While patents provide an incentive to innovate by protecting the
innovator, they are not perfect. For example:
Not every new idea can be protected with a patent or a
copyright—for example, a new way of organizing a factory or a new
way of training employees.
Patents may sometimes cover too much or be granted too easily. In
the early 1970s, Xerox had received over 1,700 patents on various
elements of the photocopy machine. Every time Xerox improved the
photocopier, it received a patent on the improvement.
The 20-year time period for a patent is somewhat arbitrary. Ideally, a
patent should cover a long enough period of time for the inventor to
earn a good return, but not so long that it allows the inventor to
charge a monopoly price permanently.
Dr. Nguyen Quynh Huong October 27, 2024 66 / 73
Phu Quoc Fishsource
In 2001 Phu Quoc fish sauce became one of Vietnam’s first products
to have its appellation of origin recognised worldwide, meaning the
name can be used only for fish sauce products made on the
Vietnamese island.
Your examples?
Other appellations of origin worldwide include champagne (a region in
France), tequila (a town in Mexico), and Havana (cigars).

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3.How Governments Can Encourage Innovation

Because patents are imperfect and do not apply well to all situations,
alternative methods of improving the rate of return for inventors of new
technology are desirable. The following sections describe some of these
possible alternative policies.
Policy 1: Government Spending on Research and Development
Policy 2: Tax Breaks for Research and Development
Policy 3: Cooperative Research

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4.The Role of Government in Paying for Public Goods

The Problem with the Prisoner’s Dilemma

Suppose two people, Rachel and Samuel, are considering purchasing a
public good. The difficulty with the prisoner’s dilemma arises as each
person thinks through their strategic choices.
Step 1. Rachel reasons in this way: If Samuel does not contribute, then I
would be a fool to contribute. However, if Samuel does contribute, then I
can come out ahead by not contributing.
Step 2. Either way, I should choose not to contribute, and instead hope
that I can be a free rider who uses the public good paid for by Samuel.
Step 3. Samuel reasons the same way about Rachel.
Step 4. When both people reason in that way, the public good never gets
built, and there is no movement to the option where everyone
cooperates—which is actually best for all parties.
Dr. Nguyen Quynh Huong October 27, 2024 69 / 73
4.The Role of Government in Paying for Public Goods

The key insight in paying for public goods is to find a way of assuring that
everyone will make a contribution and to prevent free riders. For example,
if people come together through the political process and agree to pay
taxes and make group decisions about the quantity of public goods, they
can defeat the free rider problem by requiring, through the law, that
everyone contributes.

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4.The Role of Government in Paying for Public Goods

However, government spending and taxes are not the only way to provide
public goods. In some cases, markets can produce public goods. For
example, think about radio. It is nonexcludable, since once the radio signal
is broadcast, it would be very difficult to stop someone from receiving it. It
is non-rival, since one person listening to the signal does not prevent others
from listening as well. Because of these features, it is practically impossible
to charge listeners directly for listening to conventional radio broadcasts.

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4.The Role of Government in Paying for Public Goods

Radio has found a way to collect revenue by selling advertising, which is an

indirect way of “charging” listeners by taking up some of their time.
Ultimately, consumers who purchase the goods advertised are also paying
for the radio service, since the station builds in the cost of advertising into
the product cost. In a more recent development, satellite radio companies,
such as SiriusXM, charge a regular subscription fee for streaming music
without commercials. In this case, however, the product is
excludable—only those who pay for the subscription will receive the
broadcast.

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4.The Role of Government in Paying for Public Goods

Some public goods will also have a mixture of public provision at no

charge along with fees for some purposes, like a public city park that is
free to use, but the government charges a fee for parking your car, for
reserving certain picnic grounds, and for food sold at a refreshment stand.

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