Enron Corporate Scandal and Microeconomics Essay

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Microeconomics

Enron Corporation is an example of one of the largest corporate scandals in the history of the United States. Given a series of corporate mismanagement, Enron is regarded as a shocking example of corporate corruption in the modern business world. The company took 16 years to increase its assets from 10 billion to 65 billion, which was significantly reduced in 24 days (Gibney, 00:00:38-00:00:47). Enron’s corporate scandal has been the subject of numerous studies within the business sector as it offers significant lessons on economics and corporate management. Alex Gibney’s film Enron: The Smartest Guys in the Room provides insights on various topics that are relevant to microeconomics in relation to Enron corporate scandal.

One of the topics discussed in the video relating to microeconomics is market regulation, which is a board term used to refer to government policies that regulate the market. Market regulation is evident in the discussion regarding the energy sector in California. As noted in the video, California is one of the most regulated markets in North America. However, Enron took advantage of the existing market regulations in California relating to the energy sector to steal billions of dollars from people as it emphasized on making profits. The company identified loopholes in market regulations in California that resulted in a year-long energy crisis, which cost the State $30 billion. Ken Lay, one of Enron’s bosses, believed in capitalizing on every loophole or opening to engage in all manner of unethical practices for the benefit of the company. He viewed deregulation based on all probable profits the company could make regardless of how it would go about making the profits.

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Market regulation is an important factor in Enron’s case as the federal government, which regulates the energy industry in the United States, refused to intervene in California’s energy crisis. This refusal provided loopholes…

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…how market regulations play an important part in economic growth and profitability. Deregulated California market resulted in Enron’s adoption of business practices that were characterized by excessive risk-taking and fraudulent activities. Gibney shows Enron’s excessive risk-taking following deregulation of the California market in two ways. First, Enron created an artificial electricity shortage through which it continued acting as a middleman. During this process, the company drained the public millions of dollars by trading on price fluctuations. Once the company could no longer use this strategy, the employed another tactic. After making profits as an energy producer, Enron purchased several power plants in the State of California and operated others for profits. These two strategies highlight the dangers of deregulation as a strategy for enhancing the operations and profitability of businesses in a particular industry. When employing deregulation, governments needs to provide support and more oversight on certain industries like the energy sector to protect customers and….....

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