Public Policy Final Study Guide Review market efficiency Monday 1 13 14 Market economies allocate goods thru the price mechanism o Assertion 1 open and competitive markets efficiently provide goods and services Competition lowers costs of production and therefore lowers prices for consumers Caveat certain conditions must be met o Ex the market for apples Planned economies o Isn t there a lot of waste in market economies Planned economy a committee decides how goods and services will be allocated What info does the committee have access to o Generally not as efficient as market economies o may have less waste but the committee doesn t have that information that s available to the open market which means how do they know what the consumers wants it sells They produce more If it doesn t sell they produce less Like gluten free vanilla Chex cereal o A country has a planned market tell the factory to produce so many shoes They didn t know the leather wasn t high that year and the factory wanted to make the most amount of shoes so they created all baby leather shoes o You want to serve salad o Suppose you were on the restaurant committee in a planned economy o Suppose you are in a market economy and want to start a restaurant What would you have to plan What would you have to plan o That s what s nice about market economies you don t have to know how much supplies you need to make a salad like a planned economy does Starting a restaurant Equity o That goods are allocated according to need or some other criteria o Does everyone who needs a salad have a salad o Assertion 2 market are often inequitable Caveat here were talking about equity in outcomes not in terms of process Markets are efficient if open and competitive Markets not equitable so a salad can be produced for everyone but the salad cannot be brought to everyone like in a poor neighborhood Comparison o Efficiency a big pie o Equity distribution of pie who gets what Market failure o Instances when free markets produce an inefficient allocation of resources i e we could produce the god or service more cheaply or that provide more benefits o Examples more details next time Monopolies Externalities Information asymmetries Collective action problems A logical argument to consider in PP in general Statements Good and services should be allocated efficiently Ppl should be efficiently compensated for their labor If we adopt to policy x then goods and services will be allocated more efficiently If universities are allowed to pay athletes then collegiate athletes will be more efficiently compensated for their labor if they were to pay them they university would not be able to have a lot of athletes Therefore universities should be allowed to Normative statement Empirical statement Efficiency based argument We should not impose costs harms on other for which they are uncompensated individual businesses should be able to do whatever they want If businesses control their pollution then they will impose fewer uncompensated costs on others but will also make the business increase their prices There the govt should adopt policy x Therefore businesses should control their Policy preference based of logical argument pay athletes pollution if you pay a student athlete they won t try academically Values in PP analysis o De vs te o Sometimes MARKET FAILURES today s lecture Monday 1 13 14 Concepts substitutes Monopoly exists when a single business provides a good for which there are no close o No competition o Consequences They can charge whatever price they want They charge a price that s much higher Antitrust laws Also note oligopolies Ex Nfl mlb And coca cola Pepsi Sam s club cola Ex Dominique Wilkins collector s card Small town sports business over priced the price of the card Added notes http www diffen com difference Monopoly vs Oligopoly Monopoly Oligopoly Meaning An economic market condition where one seller dominates the entire market An economic market condition where numerous sellers have their presence in one single Monopoly Oligopoly High prices may be charged since there is no competition A single firm controls a large market share in the industry thereby gaining the ability to set price Prices Characteristics market A small number of large firms that dominate the industry Moderate fair pricing due to competition in market But much higher than perfect competition where there is a large number of buyers and sellers A small number of firms dominate the industry These firms compete with each other based on product differentiation price customer service etc Barriers to entry A monopoly usually exists when barriers to entry are very high either due to technology patents distribution overheads government regulation or capital intensive nature of the industry Barriers to entry are very high as it is difficult to Monopoly Oligopoly Sources of Power Examples Market making ability by virtue of being virtually the only viable seller in the industry Microsoft Operating systems productivity suites Google web search search advertising DeBeers diamonds Monsanto seeds Long Island Rail Road etc enter the industry because of economies of scale Market making ability because of very few firms in the industry Each firm can therefore significantly influence the market by setting price or production quantity Health insurers wireless carriers beer Anheuser Busch and MillerCoors media TV broadcasting book publishing movies etc Natural monopolies a single business can supply a good or service to the entire market at a smaller cost than could two or more businesses o Examples City of Tallahassee Your Own Utilities Regulations who sets the rates municipal council sets the rates You need infrastructure for it Does it make sense to have 8 sets of power lines sewer lines going into your house that s why there is only one company which regulates the rates you pay for water electricity garbage pick up etc Externalities Ch1 page 17 market failure 2 the uncompensated impact of one person s actions on the well being of a bystander o Two types Negative externality external cost one person s action impose costs on a bystander Positive external benefit one person s actions impose benefits on a bystander Ex picture of ppl bathing in overly polluted river Negative my actions hurt someone else Not only inequitable but inefficient From a social point of view I don t consider other peoples costs in my behavior o Too much pollution Real costs those ppl have to bathe in that
View Full Document
Unlocking...