FILE: 251N10.HTML/ EDIT IN 14 POINT FONT
FALL 2005
CLASS NOTES FOR ECONOMICS 251
DR. WILLIAM SHINGLETON
WEEK 10/ NOV 1-3
FINISH LAST WEEK’S MODELS
CHAPTERS 27-28
INEFFICIENCY AND PRICE SETTING FIRMS/ALL TYPES
PRICE
NEVER = MIN ATC
OUTPUT
RESOURCES
MU >
MC
NON-PARETO
OUTCOME
MARKET
FAILURE
MARKET POWER
NUMBER
OF SUPPLIERS
SIZE
OF MARKET LEADERS
CONCENTRATION
RATIO
MAY
COME FROM INNOVATION, MERGER, OR ACQUISITION
BARRIERS
TO ENTRY
AVAILABILITY
OF SUBSTITUTE GOODS
NATURAL MONOPOLY... A SPECIAL CASE?
RELATED
TO HIGH FIXED COST/DECLINING ATC
ECONOMIES
OF SCALE
MONOPOLY
YIELDS LOWER PRICES TO CONSUMERS
PRICE
REGULATION/WITHOUT PRICE DISCRIMINATION
1.
MC = MR
2.
P = MC
3.
P = ATC
AVERICH-JOHNSON PRICE
REGULATION
BLOATED
COSTS
FIRMS
STILL MAX PROFITS
PRICE
REGULATION/WITH PRICE DISCRIMINATION/W DECLINING MC
1.
MC = MR
2.
P = MC
COSTS OF REGULATION
ADMINISTRATIVE
COSTS
130,000
GOVERNMENT JOBS /WEINDENBAUM CENTER/2001
LAWYERS
AND ACCOUNTANTS FOR THE GOVERNMENT
WHO
PAYS THE COST?
COMPLIANCE
COSTS
HOW
MANY LAWYERS AND ACCOUNTANTS FOR THE VICTIMS?
WHO
PAYS THE COST?
EFFICIENCY
COSTS
VALUE
OF SUNSET RULES/TELEPHONE TAX FOR WWI
ENVIRONMENTAL ECONOMICS/EXTERNALITIES
COASE THEOREM: EXPLANATION
VOLUNTARY
EXCHANGE CAN SOLVE PROBLEMS
COST AND BENEFIT, NOT LAW,
DETERMINE BEST OUTCOMES
IF DEALS ARE EASY TO MAKE,
THE DISTRIBUTION OF
PROPERTY RIGHTS DOES NOT
AFFECT THE OUTCOME
COASE THEOREM: APPLICATIONS
ROLE OF PROPERTY RIGHTS...RAIN FOREST FOR THE RICH
GAME FARMS FOR
ENDANGERED SPECIES WSJ 8-31-92
WHO OWNS THE ELEPHANTS? WSJ 10-25-91
PAY GREENLAND
FISHERMEN NOT TO FISH TO RESTORE
NEW
ENGLAND SALMON
FISH WORTH
$15 TO COMMERCIAL FISHERMEN
FISH WORTH
$1000 TO TOURISTS AND ASSOCIATED
INDUSTRIES
IF IT RETURNS TO RECREATIONAL FISHING AREA WSJ 8-25-92
ENVIRONMENTAL REGULATION/NEGATIVE EXTERNALITIES
OPTIMAL
RATE OF PULLUTION
MC
= MB
WHO
MEASURES THE MC, MB?
REGULATE
THE PROBLEM
TAX THE
PRODUCT
TAX THE
PROBLEM/EMISSION CHARGES
VOUCHERS
POLICY TOOLS
REGULATION
COST
ADMINISTRATIVE/COMPLIANCE/ECONOMIC
EFFECTS
ON ENVIRONMENT
EFFICIENCY
MARKETABLE
PERMITS / VOUCHER MARKET
COST <http://www.epa.gov/airmarkets/auctions/2005/index.html
>
$690/TON
FOR SULFUR DIOXIDE
(EPA) allows 8.95
million tons of SO2 per year
COASE
AGAIN
EFFECTS
ON ENVIRONMENT
EFFICIENCY
MC/MB
HOW
TO MEASURE MARGINAL SOCIAL BENEFIT
SUBSIDIES
FOR RENEWABLE ENERGY
COST
EFFECTS
ON ENVIRONMENT
EFFICIENCY