26 terms

Lec 6: monopoly and public intervention (ch20)

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Social efficiency
Production and consumption at the point where MSB = MSC

It is achieved at the point where the marginal benefits are equal to the marginal costs of either production or consumption. Issues of equity are difficult to judge due to the subjective assessment of what is, and what is not, a fair distribution of resources
Equity
The fair distribution of a society's resources
Externalities
Costs or benefits of production or consumption experienced by society but not by the producers or consumers themselves. Sometimes referred to as "spillover" or "third-party" costs or benefits

Externalities can be corrected by imposing tax rates equal to the size of the marginal external cost, and granting rates of subsidy(津貼) equal to marginal external benefits
External benefits
Benefits from production (or consumption) experienced by people other than the producer (or consumer)

Whenever there are external benefits, the market will (other things being equal) lead to a level of production and consumption below the socially efficient level

Public goods will be underprovided by the market. The problem is that they have large external benefits, and without government intervention it would not be possible to prevent people having a "free ride" and thereby escaping contributing to their cost of production
External cost
Costs of production (or consumption) borne(負荷) by people other than the producer (or consumer)
Social cost
Private cost plus externalities in production
Social benefit
Private benefit plus externalities in consumption
Public good
A good or server which has the features of non-rivalry and non-excludability(排他性) and as a result would not be provided by the free market
Non-rivalry
Where the consumption of a good or service by one person will not prevent others from enjoying it
Non-excludability
Where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy
Free-rider problem
When it is not possible to exclude other people from consuming a good that someone has bought
Consumer surplus
The excess of what a person would have been prepared to pay for a good (i.e. the utility measured in money terms) over what that person actually pays. Total consumer surplus equals total utility minus total expenditure.
Producer surplus
The excess of a firm's total revenue over its total (variable) cost
Deadweight welfare loss
The loss of consumer plus producer surplus in imperfect markets (when compared with perfect competition)

Monopoly power will (other things being equal) lead to a level of output below the socially efficient level. It will lead to a deadweight welfare loss: a loss of consumer plus producer surplus
Merit goods
Goods which the government feels that people will underconsume(消費不足) and which therefore ought to be subsidised(補助) or provided free

In a free market, there may be inadequate provision for dependants and an inadequate output of merit goods
Coase theorem
When sufferers from externalities do deals with perpetrators(加害者) (by levying(徵收) charges or offering bribes), the externality will be "internalised" and the socially efficient level of output will be achieved
Government surplus (from a tax on a good)
The total tax revenue earned by the government from sales of a good
Excess burden(負擔) (of a tax on a good)
The amount by which the loss in consumer plus producer surplus exceeds the government surplus
Social responsibility
Where a firm takes into account the interests and concerns of a community rather than just its shareholders

There are two views of social responsibility. The first states that it should be of no concern to business, which would do best for society by serving the interests of its shareholders. Social policy should be left to politicians. The alternative view is that business needs to consider the impact of its actions upon society and to take changing social and political considerations into account when making decisions. This, anyway, is generally good business
Stakeholders
An individual affected by the operations of a business
Environment scanning
Where a business surveys political, economic, social, technological, environmental and legal trends in the external environment to aid its decision-making process
Government intervention(干涉)
Government intervention is the market sets out to attain to goals: social efficiency and equity.

Government intervention in the market may lead to shortages or surpluses; it may be based on poor information; it may be costly in terms of administration; it may stifle(藏匿) incentives; it may be disruptive if government policies change too frequently; it may not represent the majority of voters' interests if the government is elected by a minority, or if voters did not fully understand the issues at election time, or if the policies were not in the government's manifesto(宣言); it may remove certain liberties
Taxes and subsidies(津貼)
Subsidies is often used to persuade a monopolist to increase output to the competitive level. Lump(總共的)-sum taxes can be used to reduce monopoly profit without affecting price or output

Taxes and subsidies have the advantages of internalising externalities and of providing incentives to reduce external costs. On the other hand, they may be impractical to use when different rates are required for each case, or when it is impossible to know the full effects of the activities that the taxes or subsidies are being used to correct
Laws
Laws can be used to regulate activities that impose external costs, to regulate monopolies and oligopolies, and to provide consumer protection. Legal controls are often simpler and easier to operate than taxes, and are safer when the danger is potentially great. However, they tend to be rather a blunt(不鋒利的) weapon
Free market
A free market leas to a automatic adjustments to changes in economic conditions; the prospect of monopoly/oligopoly profits may stimulate risk taking and hence research and development and innovation, and this advantage may outweight any problems of resource misallocation; there may still be a high degree actual or potential competition under monopoly and oligopoly
Virtue(優點) matrix
The virtue matrix is a means of illustrating the drivers of corporate social responsibility. Firms will take socially responsible actions if they are required to by law or if social norms dictate(指示). These pressures on firms represent the civil foundation. Some firms will take corporate social responsibility further and thus move into the frontier(邊界). Here they may do thing that are socially beneficial and may only possibly lead to higher profits, or may even clearly reduce profits. As firms become more socially responsible over time and as social pressure on business increase, so the civil foundation is likely to grow