公共部门经济 lecture No.4 Ch.343.pptVIP

Economics of the Public Sector Chongjin Wang Email: wangchjin@126.com Sect.2, Market failures as a rationale for government activity 1,Failure of competition For the invisible hand to work, there must be competition. Where is the monopoly power from? 1,When transportation costs are large, the relevant market may be limited geographically. 2,When switching costs are high, some firms may act monopolistically. 3,Some monopolies are created by the government,e.g.cigarette. 4,There are barriers to entry arising from what economists refer to as increasing returns to scale. When a firm has attained its monopoly position as a result of increasing returns to scale, we say that it is a natural monopoly. A natural monopoly 100万人口的城市，每人每年用水消费为100吨，期初有三家不同规模的自来水厂A、B、C，分别供应10万、30万和60万人口用水，所供应的水遍及整个城市，为了供水，三个厂都要铺设几乎相同数量的管道，对于自来水厂而言，最大的成本是管道投资，计100万，分10年折旧，而水源成本为0.01元/吨。 A natural monopoly A natural monopoly Whether a particular market is characterized by a natural monopoly depends on circumstances. e.g. Telephone sector mobile phone Post email It may be more efficient to have only one firm producing, rather than many. Why is it then that monopolies are generally viewed as bad? The reason is that, if unregulated, monopolies (whether natural or not) will restrict output to attain a higher price. Monopoly pricing and the welfare loss from monopoly A firm owner seeks to maximize his profits, he produces to the point where the extra revenue he would receive from producing an extra unit (his marginal revenue) is just equal to the extra cost of producing that extra unit (his marginal cost). Monopoly pricing and the welfare loss from monopoly Monopoly pricing and the welfare loss from monopoly 2,Public goods 2,Public goods 2,Public goods Public goods either will not be supplied by the market or will be supplied in insufficient quantity! For example, “the lighthouse” If public goods are supplied, they are often used, inefficiently! For example,