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“Natural” Monopoly• Definition: Situation where it
makes sense for only one business to provide a good or service, usually because the cost of starting up the business is very high. Prices are regulated by the government.
• Examples: UTILITIES: electricity companies, water, sewers/waste management
If Competition Were Allowed?• There would be too many
power lines, sewer systems, water lines all over the place.
• Difficult or impossible for a consumer to switch to another company
Broomfield Water Treatment Facility
Why Don’t They Raise The Price?
• How It Works:•
Cannot raise their prices without approval by the Colorado state Public Utilities Commission (PUC)—a part of the state government
• PUC allows them to make a certain percent in profit.
Problems With Monopolies
• No competition, so no incentive to:• Innovate (come up with new products)
• Provide good service
• Change what they’re doing
Colorado Amendment 37• Passed in 2004:• 52% to 48%
• Requires mid-size to large Colorado power companies to produce 10% of their electricity from renewable resources such as wind, solar, hydroelectric by 2015
Public Goods• Goods and services that are provided by the government
for various reasons:• It would be non-profitable• It would not be safe• The market wouldn’t provide the good equitably (fairly)
• Textbook definition:• Non-excludability (you can’t keep non-payers from
using it)• The cost of adding new users doesn’t change the cost
of production
4. Non-profitability
Examples:
• Army• Large hydroelectric
dam• Roads
• National Parks• Some types of R &
D (research and development)
Why the Market Doesn’t Provide It
• Dangerous! (and non-profitable)• Too expensive
• Inefficient use of land (competing roads), expensive (and fairness)
• Non-profitable• Non-profitable (fracking
technology was developed by federal government research)
Possible Solutions• Have government provide these
goods and servicesProblems?
Government doesn’t have incentive to save money: they are using tax dollars
Lack of competition leads to inefficiency, poor quality
Allow governments to build it, let private companies run/maintain it.
Problem: private business gets the profit without paying the cost
5. Equity / Fairness
• What goods and services should everyone have equally?
• What should everyone have at least minimum access to?
• What goods/services would improve our country (maximize the societal benefit) if everyone had access to them (and thus provided with tax dollars)?
Fairness • Should electricity be a public good? • Internet access? • Public roads?• Public parks and playgrounds?• Post office?• Health care?• Public education?
What if all people had /
didn’t have these services?
How Does Public Education Help Society?
• Educated population necessary for democracy
• Educated workforce more productive than non-educated
• Education leads to higher pay: people spend more money to keep economy going
• What would be the cost to society of a large uneducated lower class?
What If Public Goods Were Left to Market Forces?
• Public goods and services that are currently available to everyone equally would become something you have to pay for
• Not all people could pay• Services would not be available where not profitable (especially rural communities, poor neighborhoods)
Holy Family
• Tuition for the 2012-2013 school year is $8,300 for Catholics who are recognized and registered members of a Catholic parish; $9,600 for non-Catholics and for Catholics who are not registered members of a Catholic parish.
• Holy Family awarded over $800,000 in tuition assistance and scholarships for the 2012-2013 school year.