COMM 394 EVERYTHING
disadvantages of free trade and globalisation
-Lack of fairness. Losers not compensated. Unemployment and increased inequality -Increased power of multinational corporations -----Create monopsonies in labour markets -----Seek out most favorable regulatory regime -Standardisation leads to less product diversity and barriers to entry -Increased susceptibility to economic shocks
Why is Aboriginal Business and Governmental Relationships important in business context?
-Most common in resource-based economic activities -First Nations are significant landlords -Aboriginal economy is fastest growing economy in Canada -Aboriginal related issues are significant 'risk management' and investment factors
Numbered Treaty Example
-Oral and written agreements -sacred or solemn commitments -describes a relationship -an exchange of rights and interests? -fulfillment and breach land quantum health care education tax immunity land use "as before"
Joseph Stiglitz "Price of Inequality"
-main cuase of inequality is rent seeking because wealthy hold political power to shape monopolies, receive favourable treatment, ensure low taxes -transfers across generations -unfair and hurts productivity
different types of electoral systems
-majoritarian system: majority of votes (>50%) ------ alternative vote: ranking candidates ------ run-off/second-round voting system: top 2 move on -plurality system: more votes than any other candidate -proportional system: close relationship b/w popular vote a party receives and the number of candidates it elected
Remedies to imperfect information problems
-markets for information -reputation -labeling/disclosure requirements -standards
Deadweight loss (DWL)
-measure the deviation from pareto efficiency -is the sum of the gaps between "willingness to pay" and "cost of supply" -is "wasteful" because it means "money was left on the table." aka. mutually beneficial transactions were not realized -usually triangles
types of imperfect competition
-monopoly -cartels -oligopoly -monopolistic competition -monopsony
effective transfer seeking
-more effective if gains are concentrated on a small group and losses are dispersed over a large group ----- With concentrated gains, each member gains significantly from successful lobbying, which gives rise to an incentive to contribute time and money to the lobbying effort ----- If losses are disbursed, there are low incentives for opposition
describe 5 reasons why protection may fail to increase total employment
-negative effects on downstream sectors -jobs moved rather than created -export jobs reduced by foreign retaliation -export jobs reduced by exchange rate appreciation -protection's DWL shrinks overall economy
two types of market failure in the presence of which profit maximization fails to yield efficient results
-negative externalities: Arrow focuses on pollution caused by the firm. -asymmetric (imperfect) information: the firm knows more than the customer about the quality of the product. The firm also knows more than the worker about the safety of the workplace. Examples: I cars and pharmaceuticals I mining
Market Failure type 2: public goods
-non-rival: the benefits obtained by one "consumer" are not subtracted from benefits available to others -non-excludable: it is prohibitively costly to selectively prevent people from using it
Aboriginal Title
-now established in Tsilhquot'in (2014SCC44) -aboriginal rights and title flow from pre-existence and occupation -required a degree of exclusivity (shared exclusivity possible) -Ownership! (a right to use of, and control over, land itself) -includes a right to reap the benefits of the land -aboriginal title lands cease to be "crown lands" under Forest Act -governments under a legal obligation to negotiate in good faith -provincial jurisdiction ousted
pareto improvement
-occurs when at least one person is made better off while no one is made worse off.
Milton Friedman
-one and only social responsibility of business is to use its resources to increase profits as long as staying within rules of the game -a corporate executive is an employee of the owners of the business. Has direct responsibility to his employers and conduct business in accordance with their desires (usually to maximize profits)Arug
In a market economy:
-prices are determined by supply and demand -demand represents aggregate preferences of consumers (consumer sovereignty) -goods re supplied by individuals/firms pursuing profitable opportunities (economic freedom)
Brander's 8 rationales for trade policy
-raising revenue -military, cultural, or other non-economic objectives -exploit monopoly power in import or export markets -infant industry argument -profit-shifting -domestic redistribution -employment -trade balance
Import Restricting Policy Tools
1. Tariffs (also called customs duties): Taxes that are applied only to goods obtained from abroad 2. Quotas (quantitative restrictions): Physical limits on quantity imported 3. Preferential Government Procurement (e.g. "Buy Canadian" policies) 4. Administrative Barriers ("red tape"): Forms and procedures at customs 5. Other import-discriminating regulations (disguised protection): Often involve safety of food or other consumer products
Con Lobbying
1. They are transfer seeking (CEO of major corp for grants and special protection)
outline friedman's arguments
1) a manger's duty as an employee & an agent of the principal (shareholder) overrides his or her alleged social responsibilities 2) pursuing social responsibilities other than profit max. is a form of "taxation without representation" 3) pursuing profit leads to pareto efficiency (invisible hand)
Four Economic Concepts
1. Opportunity cost 2. Marginalism 3. Economic incentives 4. Economic efficiency
Perfect Competition
1. Price Takers 2. Lots of buyers & sellers with homogenous prod. 3. Access all info with low transaction cost 4. Free entry entry in LR
Determinants of Incentives
1. Voting 2. Special Interest & Transfer Seeking 3. Self-interest
perfect competition
1. Prices are set by the market (No one has the power to "set prices") 2. Entry of new firms (or exit of unprofitable firms) drives profits to zero. 3. Buyers and sellers have all relevant information.
8 Normative Rationales for Trade Policy
1. Raising revenue 2. Military, cultural, or other non-economic objectives 3. Exploit monopoly power in export markets (exports only) 4. Infant industry argument 5. Profit-shifting (exports only) 6. Domestic market failure (e.g. externalities) 7. Domestic redistribution 8. Retaliation vs foreign trade barriers
Four Potential Solutions to Market Failure
1. Regulation: production standards, maximum emission levels, safety inspections 2. Taxation: tax pollution, subsidize abatement. 3. Legal responsibility: damage suits or "torts" 4. Social responsibility: moral obligations to obey ethical codes
characteristics of natural monopolies
1. capital intensive 2. physical network
Effects of refereeing incentives
1. cash incentives significantly improve speed 2. cash payments do not crowd out intrinsic motivation: after the cash treatment ends, referees who received cash incentives are no slower than those in the four-week deadline group 3. No unintended consequences: all the treatments have little or no effect on rates of agreement to review, quality of reports, or review times at other journals.
Pair-wise majority voting
1. decide between one pair of projects, find majority 2. Use the winner and decide with 3rd project for new majority
dimensions of Rule of Law
1. effect on economic growth 2. regulation 3. tax compliance and evasion 4. corruption 5. freedom of information, freedom of speech
Dealing with Monopoly Power
1. encourage/ enhance competition 2. Regulate industry (limit price/ set quotas) 3. Gov't ownership/ Crown Corp
application of ethical analysis (preliminary steps)
1. identify ethical issues 2. identify stakeholders and how thy would be affected
application of Rawl's justice theory
1. identify the alternatives (actions/rules) 2. identify consequences of each alternative 3. evaluate alternatives according to 3 principles - equal liberty principle - fair equality of opportunity principle - difference principle 4. determine the alternative people would make behind veil of ignorance
application of utilitarianism
1. identify the alternatives (actions/rules) 2. identify consequences of each alternative 3. evaluate net social benefit of each alternative based on consequences 4. choose alternative with highest net benefit
application of Kant's categorical imperative
1. identify the alternatives (actions/rules) 2. identify consequences of each alternative 3. identify conflicts between rights/rules 4. prioritize conflicts 5. choose alternative that does best according to rules and priorities established in steps 3 and 4
4 types of market failure
1. imperfect competition 2. public goods 3. externalities 4. informational market failure
rule of law
1. implies need for legal system to govern actions 2. universality: no individual above the law 3. protection of private property 4. contract enforcement
Reasons for Representative Democracy
1. impractical if not impossible to have everyone vote directly 2. Reps can make use of expert opinions and make better decisions
Solutions to environmental externalities
1. internalizing the externality via unified ownership 2. quantity controls or standards 3. taxing on polluting activities 4. subsidiaries for abatement 5. assignment of property rights (torts or creation of a market for tradable permits)
Solutions to environmental externalities
1. internalizing the externality via unified ownership (mergers) 2. quantity controls or standards 3. taxes on polluting activities 4. subsidies for abatement 5. assignment of property rights -torts -creation of a market 6. social responsibility, utilitarian ethics
Consequences of Transfer Seeking
1. Resources consumed are wasted from a social point of view 2. There is a wealth transfer from society at larger to the seeker 3. Policy induced usually has DWSL associated with it eg. A firm seeking to obtain a monopoly franchise eg. Taxi business
Advantages for undertaking tasks at the local level
1. locals gov't typically know more about local stuff than central 2. Ppl can vote with their feet by moving between local jurisdictions = gov't have to compete for residents and firms by providing services efficiently and offering attractive combinations of taxes and services
2 types of efficiency
1. management 2. pareto (allocation)
Why policies differ under rep and direct democracy
1. matter of expert judgement to make informed decisions about policies 2. rep gov't are more subject to interest groups than individuals 3. Reps don't actually reflect general population (higher incomes, educated, advantaged)
questionable job rationale - 5 reasons to be skeptical of net employment creation due to protectionist trade policy
1. negative effects on downstream sectors 2. jobs moved rather than created 3. export jobs reduced by foreign retaliation 4. export jobs reduced by exchange rate appreciation 5. protection's DWL shrinks the overall economy
Perfect competition
1. no one has the power to set prices: sellers and buyers take the market price as a given. 2. Entry of new firms (or exit of unprofitable firms) drives profits to zero. 3. Buyers and sellers have all relevant information
Murphy's categories of rationalization
1. pleading ignorance 2. shifting the blame 3. advantageous comparison 4. moral justification 5. euphemistic labeling 6. victim blaming
3 kinds of public enterprise
1. state provision of public goods 2. publicly owned natural monopolies 3. publicly provided "private" and "club" goods that would potentially be competitively supplied
Friedman on corporate activity that aims to help the community but reduces profits
1. undemocratic because these decisions should be made through a democratic process (the political system) 2. unwise because a businessperson has no expertise to identify and fix social problems. 3. ineffective because a manager that acts contrary to profit maximization might be fired or have customers desert to a less scrupulous firm.
arguments against Friedman
1. undemocratic? really? If shareholders and/or their representatives (board) are well informed and vote in favour, that is democratic (by definition). 2. unwise due to lack of expertise? often firm knows much more about its product and production process than any government regulator. 3. ineffective because will lose job or lose business? not if shareholders and consumers endorse the firm's goal.
3 main sources of government failure
1. unelected decision makers who pursue their own interest at the expense of public interest 2. voting outcomes depend on process and not give appropriate weight to all 3. interest group activity - transfer seeking
Competition Bureau composition? budget?
14 economists and 241 "comp law officers" - budget of $50 million
pleading ignorance
1st Murphy's category of rationalization; ignore/misconstrue consequences of act ex: "I'm not hurting anyone"
equal liberty principle
1st principle of justice (Rawl's); everyone has same liberties of right to life, freedom of speech, right of assembly, and right to vote
% of gov revenue collected through tariffs
2-3%
shifting the blame
2nd Murphy's category of rationalization; diffuse responsibility elsewhere to not hold yourself responsible ex: "everyone does it"
what % of Canada's GDP are exports?
30-35%
advantageous comparison
3rd Murphy's category of rationalization; comparing the wrongful act against a worse act to make it look better ex: "this is nothing compared to ..."
what is the ratio of the GDP per capita of economically "free" countries (HF) compared to "unfree" or "partly free" countries?
4
moral justification
4th Murphy's category of rationalization; reprehensible acts reconstrued as socially worthy ex: "I'm protecting the company"
euphemistic labeling
5th Murphy's category of rationalization; using gobbledygook to make a wrongful act better ex: "I'm leveling the playing field"
victim blaming
6th Murphy's category of rationalization; finding faults with victims of the event ex: "they were asking for it"
Smith Market View
"Market transformations are undertaken by self-interest and social welfare"
Peltzman Effect
"Safety regulation has had no effect on the highway death toll"
in imperfect competition, som sellers or buyers are said to have........
"market power"
procedural fairness
"rules of the game" are just, regardless of the final allocation that results - equality of opportunity
Predatory pricing?
"selling products at prices unreasonably low...."
4 important conspiracy cases ?
- 1998 - Lysine (animal feed, movie - The informant) - 1999 - Vitamin producers -2011 - Unilever and P&G , washing machine powders - 2012 - Ebooks & Apple
Hostelling's Theory
- 2 parties will cluster around the middle of political spectrum - system with 2 parties, platforms won't differ very much
Advantages of the CAN system? Commissioner and Tribunal.
- Commissioner has "deputy minister" status and position is supposed to be kept free from political influence. - Tribunal is better than courts because has EXPERTISE, IS FASTER, and is FLEXIBLE (negotiated settlements)
Competition law implemented by who (CAN) ? enforced by who?
- Competition Bureau (argues civil cases before the Tribunal, refers criminal cases to the attorney general) - Competition Tribunal (hears cases)
what comp law violations can be prosecuted criminally ?
- Conspiracy to raise prices - Intentional deceptive practices (ponzi schemes for examples)
Representative Democracy
- Elected Representatives make decisions - posts severe restrictions on the way which voters can influence policy
3 types of mergers?
- Horizontal (company at same level) - Vertical (upstream/downstream company) - Conglomerate (unrelated company)
What comp law violations are handled by Civil law?
- Mergers that lessen comp - Abuse of Dominance (AoD) (predatory pricing, etc.) - Restrictive trade practices (RTP) (refusal to deal, tied selling, resale price maintenance)
social interest groups / single issue voters
- Often only a minority of people support the position of the group - Would usually lose in a direct vote or referendum on the issue - Can have much greater influence over policy than their numbers suggest - Use demonstrations and confrontation that is costly to politicians - A multi-issue candidate has an incentive to adopt their policy if other voters are largely indifferent
Andrew Coyne
- Ontario's business support program is a waste of money (not because of lack of transparency, corruption, going to large firms, or anything) - competition is not between our country's industry vs. another country's same industry, but between industries in the same jurisdiction - other countries' subsidies don't affect our comparative advantage - debate of free trade vs. protectionism is NOT about jobs created (jobs created from protectionism and subsidies is jobs taken away from a different industry)
Externalities
- People affected by economic activities of other without markets to price the effect - Without regulation, negative ____ overprovided - Without regulation, positive____ underprovided
Maximin Principle
- Preference for the welfare of the least advantaged. - veil of ignorance useful if you reject maximin
2009 amendment to Comp Act made what subject to Civil provisions?
- Price Discrimination - Predatory Pricing - Resale Price Maintenance
veil of ignoranace
- Rawls said to decide what is fair, you put yourself in the original position behind a veil of ignorance
5 major import-restricting policy tools ?
- Tariffs - Quotas - Preferential government procurement - Administrative barriers (red tape) - Other import-discriminating regulations (disguised protection) (often involves safety regulations)
Positive Analysis
- Tries to explain WHY gov't choose the policies they do AKA. Public Choice Theory
summary of democratic voting
- Voters may not have the expertise to make well informed judgements on every issue - Votes do not convey intensity of preferences of individual voters - While voting seems like a 'fair' process, different voting schemes can yield different outcomes - The current plurality system in Canada tends to lead to majority governments but an under-representation of minority political parties
comparative advantage
- a country has a comparative advantage in the production of good X if the OPPORTUNITY COST of producing X is lower in that country than other countries - countries export those products that they are relatively good at producing as determined by comparative advantage
Healthy democracy requires
- an educated electoral understand political, economic, and social issues - a free press - an independent judiciary to ensure politicians are held accountable
Does the median voter support good policies?
- avoiding extremes can be good - does not capture intensity of preferences
Transitional Gains Trap
- benefits are temporary fro the original entrants - Policies create monopoly power in a PREVIOUSLY competitive industry eg. Taxi Medallions eg. Canadian Dairy Farms
Minimizing informational asymmetries
- buyers can search for info about products - sellers can ask 3rd parties to certify - sellers that produce high-quality products earn a good rep - firms get bad press of produce unsafe products
imperfect competition
- buyers or sellers exert control over prices - entry or exit blocked - market power in hands of some buyers or sellers - firms produce too little and prices are high
Resale price maintenance ?
- can't make an agreement, threat or promise - can however request, discuss, persuade, - resale price maintenance is more often prosecuted than other areas of pricing related comp policy.
incentives for resale price maintenance?
- collusion to raise prices - encourages proper amount of advertising and support services - maintains brand image
David Ricardo
- comparative advantage - in free trade, good to devote resources to where there is comparative advantage --> good universally
physiocratic idea
- concern of deindustrialization; belief that physical things are of more value
Retailers in Bangladesh
- cost of labour is lowest in Bangladesh - tradeoff of bottomline vs. reputation for many clothing firms - is large firms leaving the solution to making the situation better in Bangladesh? should they stay and try to push for stronger regulations since currently the country isn't enforcing regulations on their own? is it within their responsibility to enforce stronger regulations? time and resources - companies having rules for suppliers and licensees
dead weight loss
- deviation from Pareto efficiency - "wasteful" because it means "money was left on the table." Mutually beneficial transactions were not realized.
Vote Trading
- different members of policy-making group form coalitions to support one another on policy proposals eg. bridge building votes --> support park development next time AKA. Logrolling
Administrative Barriers
- difficult to measure the cost of red tape - security-productivity trade off
capital and labour are inputs - 2 policy responses
- direct redistribution: increasing wages - fiscal redistribution: tax on capital - Fiscal redistribution preferable since increasing cost of labour through direct distribution increases unemployment
why might infant industries require protection while they mature?
- domestic producers lack experience, current costs high - if domestic market is served by imports, domestic producers gain no experience and costs stay high - if imports kept out temporarily, domestic price would rise enough to allow for profitable domestic production - with enough experience, domestic producers might be able to compete with import prices, without help from protection
preferential government procurement
- during financial crisis, US announced a Buy American Rule
advantages to the plurality system: What are the advantages of the current system used to choose the BC legislative assembly where each district elects one MLA based on plurality where each party puts forth one candidate?
- easy to use and understand - maintains direct link between a local rep and his/her Constituency - tends to produce majority governments - encourages fewer, larger, and more inclusive political parties
two common (but questionable) justifications given for restrictive trade policy ?
- employment increases - trade balance improvements
policies that promote distribution fairness come at cost of reduced efficiency
- evening out the outcomes removes incentives - if different efforts --> same payoffs, less reason for effort - DWL if prices moved away from competitive equilibrium to benefit buyers or benefit sellers
Abuse of Dominance: 4 anti-competitive acts?
- exclusive dealing (supplier requires customer to deal only, or mostly, in certain products) - Tied selling - Market restriction - Refusal to Deal
Why is direct democracy not superior to representative democracy?
- expense - expertise/specialization of voters - aggregate preference problems: voting does an imperfect job of revealing aggregate preferences b/c it does not account for differences in the intensity of individual preferences
tariffs
- expressed "ad valorum" (as a percentage of price), fee-per-units are also used
Why type 3 (non natural monop and excludable) ie ICBC
- goal of universal access or fairness - goal of revenue - union capture
infant industry protection - what to watch out for
- gov must be well-informed and not be captured by industry interests - infants may never grow up if promised learning by doing not realized and never become competitive - infants may have grown up w/o DWL incurred by protection along the way - gov. maybe shouldn't try "picking winners"
Agenda Setter
- great power - depends on preference of committee members
Comp Tribunal ? settles what? composition?
- handles civil matters - 4 judges, 8 "lay" members (generally economists with 7yr terms)
Tribunals standard of judgement for mergers?
- if the costs to consumers are greater than the efficiency gains to the firms Tribunal can: - block merger - dissolve after the fact - force to dispose of some assets
3 main consequences of rent seeking
- there is a transfer of wealth to the rent seeker - resources consumed in rent seeking are wasted - the policy induced by rent seeking usually has a pure waste associated with it (efficiency is compromised)
Role of Federal Government
- to provide public goods like national defence - Feds are more able to implement policies that address equity and redistribution - anything to do with trade and transportation (BNA gives power) eg. One province cannot prevent a pipeline from being built and used to transport oil or natural gas across its territory
cost-benefit analysis
- tradeoff between gaining additional social welfare against the costs of implementing the policy
Pre-merger notification required when?
- transaction is over $80M - or combined firm values exceed $400 million
market lemons
- underpricing of good products happen - drives good products out of market because of existence of lemons
macroeconomic environment refers to 3 variables
- unemployment, inflation, per capital real gross national product (or GDP) - interest rates and exchange rates
Source of comparative advantage?
- usually have a comparative advantage in goods for which a particular country has a relative abundance in one or more of the factors of production - ie. more labor, less capital, -> export labour intensive goods, import capital intensive goods
the use of ethics in business, 2 points
- voluntary health and safety practices (labeling, warnings) - professional codes of behavior: doctors, lawyers, accountants, RE agents, etc.
Define "natural monopoly"
- when a feasible level of demand can be met at a lower cost by a single firm than by two or more - occurs when avg costs are declining throughout the area covered by the demand curve (essentially same point as #1) - Examples include: often utilities, mail service, rail, telephone service.
Pareto Improvement
- winners gain enough to be able to fully compensate the losers and still be better off - weaker condition/ easier to satisfy b/c compensation doesn't actually have to be made
insurance and adverse selection
- worse types have greatest incentive to buy - pushes prices up
section 35, Constitution Act, 1982
-"existing" Aboriginal Rights - not sure; could be the empty box or full box theory - inter-jurisdictional immunity (constitutional room?): not in federal gov, then within provincial gov - NO, aboriginal can have third rights not just between federal and provincial - concept of entrenchment - constitutional 'negotiations'
Paris Agreement
-2015 UN Climate Change Conference -aims to limit global warming to less than 2 degrees celcius above pre-industrial levels -legally binding as at least 55 countries -no penalties for non compliance -critics say to vague
UN Declaration of the Rights of Indigenous People
-Adopted by the UN General Assembly in 2007 -Canada expressed (qualified) support in 2010 -Affirms rights to lands, territories and resources traditionally owned, occupied, used or acquired -Free, Prior and Informed Consent (FPIC)
Have we escaped the Malthusian Trap?
-Birth-rates lower now because of improved healthcare, nutrition, educated parents, etc -Technological improvements to food production -Better institutions to prevent war -Medical developments to reduce disease
Thomas Piketty
-Clear evidence of high levels of inequality -If capital and labour are inputs, assuming substitution between labour and capital, there are two policy - Direct redistribution (increasing wages) - Fiscal redistribution (tax on capital) -----Fiscal redistribution preferable since increasing cost of labour through direct distribution increases unemployment -Capital to labour elasticicity found to be low from empirical findings (taxing capital does not have a large effect of reducing employment) -but capital is internationally mobile and tax competition makes capital highly elastic --> solution is fiscal federalism, a progressive global tax on wealth
advantages of free trade and globalisation
-Higher production through principle of comparative advantage -Access to larger markets increases demand and lowers costs through economies of scale -Cheaper access to inputs -Increased investment and knowledge sharing -Reduced risk of global warfare?
exploiting monopoly power as an export policy
-If a country has a (near-) monopoly on something (e.g., Brazil and coffee), then it can exercise monopoly power - Suppose the industry is competitive, then the Government can use a tariff to get monopoly rents -This raises a lot of revenue for the government - But the producers don't get the revenue, and instead get a reduction in quantity provided
two forms of democratic decision-making
a) direct (pure) democracy: involves direct voting by individual citizens on alternatives b) representative democracy: involves the election of delegates who are vested w/ the power to vote on alternatives and who represent the interests of individuals they represent
Efficiency loss due to market failure-asymmetric information
bad products are over-provided when their quality is not known, good products are under provided (because consumers have lower willingness to pay when quality is uncertain)
3 important factors
business interests government decision making/approval aboriginal people's interest In the middle of venn diagram - Consultation and Accommodation - Aboriginal and Treaty Rights Impacts - Treaty Negotiations - Project Approvals - Negotiations
Monopsony
buyer has market power
legal responsibility
damage suits or "torts"
sequential voting
depending on which vote is held first, can manipulate result when you know preferences of the other parties
Kant's practical imperative
do not treat people purely as a means
kants 2nd rule, the practical imperative
do not treat people purely as a means
golden rule
do unto others as you would have other do unto you
Majority Voting System
each item gets a vote and majority wins
Marginalism
effect of doing the activity just a little bit more; Any policy or activity should be carried out as long as the marginal benefit > marginal OC
egalitarianism
equal shares
Deceptive practices?
essentially lying/making false claims
Russian corruption
estimated cost to investors since Putin's rule: $1 trillion USD
Ayn Rand
ethical egoism "So you think that money is the root of all evil. Have you ever asked what is the root of all money?" "Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value."
how economists value life
everything earned and accumulated by an average person - the grand total value of all of their economic activity
pecuniary externalities
externality is incorporated into the price
Example of internalization via merger
fishery and pulp mill
Jeremy Bentham
founder of utilitarianism
economic freedom
freedom to enter into voluntary economic agreements
define "dominant firm"
generally 50% or more of market share. but they are not monopolist. the rest of the firms are referred to as the "dominant fringe"
Taxing bads =
government gets revenue while reducing DWL
Taxing goods =
government gets revenue, but at the cost of DWL
Rule of Law v. regulation
government regulation can become a burden on companies and suppress innovation, business investments, etc.
Setting the right tax for pollution
if SMC > PMC you want a tax such that PMC + t = SMC
Principle of Voluntary Exchange
if an exchange takes place, both parties believe they can benefit from it
Rule of Law v. corruption
if government regulation is a burden on business, increase in corruption (people will find loopholes)
geography of externalities
if the externality is global governments will often fail to respond. For these we need global agreements ("protocols")
grim
if you ever defect, I'll defect for all the times
tit for tat
if you ever defect, I'll play defect until a round after you play cooperate
Hauser's Law
in the US, ratio of tax revenue to GDP is insensitive to federal tax rates applied to Laffer curve, it would plateau
Oligopoly ? key characteristic ?
incentive to behave strategically. Ergo, game theory applies
Indigenous Nationhood
indigenous people believe they are own nation
nondiscrimination principle
individual fairness; people have a right to be judged on the basis of individuality, not group membership *implies people can be rejected if they lack relevant abilities*
Free Ride
individuals can consume public goods without paying for them
moral relativism
individuals/organizations should be evaluated by the values/morality of the society in which they reside (not to absolute standard of behaviour) ex: Shakespeare's plays had liberal sexual content
principle of autonomy
informed consent, no deception, no coercion
Disequilibrium/cyclical unemployment
insufficient (aggregate demand to employ all factors.
direct democracy
involves direct voting by the citizenry on policy issues (rule by referendum)
negative externalities
labor shortages, crime, revolution
incentives
linking an agent's utility to some action or outcome
rule-based
major ethical theory category; certain actions must be taken/certain rules must be followed regardless of the consequences (doesn't focus on cost and benefits) ex: no lying
consequentialist
major ethical theory category; ethical action is one that produces good consequences (ends can justify means) ex: white lies may be allowed
Rule of Law v. tax compliance/evasion
tax rates are a delicate balance (Laffer curve): too high --> evasion, too low --> no incentive, and no tax revenue
Tariffs
taxes that are applied only to goods obtained from abroad
Comp law in the US started with ?
the Sherman Act (1890) in response to Standard Oil.
the first welfare theorem
under perfect competition, markets achieve pareto efficiency
invisible hand
unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand.
Civil law violations - fine amounts?
up to $10M for first offence and up to $15M for subsequent offences
Jeremy Benthem
utilitarianism
Examples of natural monopoly
utilities mail rail transport local telephone service
traditional approach
value of human life = lost earnings + legal expenses ex: Ford Pinto case
ethical egoism
view that moral agents should do what is in the their self-interest
cyclical management
we might want to over-harvest some years and under-harvest other years.
positive analysis
what policies are actually adopted
normative analysis
what policies should do
when does a natural monopoly exist?
when any feasible level of demand can be met at a lower cost by a single firm than two or more firms
when does a natural monopoly occur
when average costs are declining throughout the area covered by the demand curve
dominated winner paradox
when majority winner of electorate is not the majority winner of the popular vote
raising revenue
works for both imports and exports -government have legitimate functions that cost money -want marginal cost function to be same across all sources, including tariffs; collection cost on tariffs is quite low -around 2 to 3% of gov revenue collected this way
Keith Head - how to spot an ethical dilemma?
• Will any of the possible selections lead to harm imposed on someone else? • Do any the selections involve breaking important moral rules?
issues with utilitarianism
• assumes utility is comparable across individuals • favours redistribution to those with greatest capacity for happiness (others may end up sadder) • implies individuals can be sacrificed for greater good
dependence of VSL on age
• does VSL increase or decrease with age? - kids have more years left to live - older people have invested time and money into economy
dependence of VSL on health
• does VSL increase? - use quality-adjusted life years (QALY)
Canadian corruption
• engineering and oil & gas industries susceptible to corruption due to government interaction in other countries • few whistle-blowing hotlines compared w/ US
issues with GDP
• excludes non-marketed goods (household work, volunteering, black market) • neglects environmental degradation • includes expenditure on fighting crime -__- • includes expenditure on recovering from disasters
protection of private property
• for exchanges of g&s to be voluntary • for people to benefit from long-term investments
contract enforcement
• for people to benefit from long-term investments • enables inter-temporal transactions (non-simultaneous exchanges)
issues with cost-benefit analysis
• future is hard to predict • need to discount future values • choice of discount rate controversial if long timeline • how to weigh ancillary (extra) costs and benefits? • how to value things like human lives?
issues with maxi-min principle
• how to address policies involving utility of unborn babies? • implies people are infinitely risk averse (small chance of small loss outweighs high probability of big gain)
issues with Kant's categorical imperative
• not always sufficiently precise • moral rules may be in conflict with each other • no exceptions for violating a moral rule • no punishment for violations
issue with redistributive fairness
• policies tend to reward disadvantaged --> create incentives for people to become/appear disadvantaged --> inefficiencies
Rule of Law v. effect on economic growth
• positive correlation between Rule of law and GDP per capita --> encourages investment in infrastructure, education, etc. • foreign aid assesses political accountability for loans (rule of law could increase that)
Kant's categorical imperative rules
• rules are universal (Rule of Law) • Rules respect well-being, privacy, non-discrimination, and equal opportunity (Rule of Law) • Rules respect individual autonomy • Rejects "ends justify the means" (unlike utilitarianism)
Chinese corruption
• similar to Russia • bribery, connections, etc. make it hard for students returning to the country to get jobs
maxi-min principle characteristics
• similar to benefits principle and utilitarianism in judging outcomes by net benefits BUT different weights to individuals • doesn't imply everyone should be equally well off
issues with moral relativism
• some practices "universally unacceptable" • undermines concept of moral progress • provides no basis for choosing between conflicting views
Ukrainian corruption
• top-down corruption throughout entire post-Soviet history • spiral: leader created hierarchy of corruption --> became less popular --> had to use corruption to gain votes • all factors that make corruption inevitable still remain
benefits of utilitarianism
• treats everyone equally • diminishing marginal utility of income --> favours redistribution from rich to poor
issues with procedural fairness
• unclear what rights are protected/what procedures should be adopted 1. no coercion allowed ex: no mandatory tax 2. constitutionally agreed rights ex: free speech
Tullock's Welfare Loss
- if you compete with others to have government grant you a monopoly - monopoly creates DWL, so efficiency is compromised - because you are compromising with others to get monopoly profits, you would be willing to make transfers to politicians and other expenditures up to the value that you would get from the monopoly - transfers and expenditures dont create economic value and consume resources - WELFARE OPPORTUNITY COST
outcome from trade will not be pareto-optimal when there is
- imperfect competition - information problems - externalities - other cases (coordination problems)
the outcome from trade will not be parteto optimal when there is
- imperfect competition - information problems - externalities - other cases (coordination problems)
4 types of market failures
- imperfect competition - public goods - externalities - informational market failure
pareto (allocational) efficiency
- impossible to re-allocate the resources among a group of people in such a way as to make at least one person better off without making anybody else worse off - no DWL - we can never achieve in real economic situations
Commissioner usually does not challenge when?
- merged firm has less than 35% market share - post-merger market share of 4 largest firms (CR4) is less than threshold for coordinated exercise of market power (65%)
Majority of Comp Bureau's investigations are regarding what?
- misleading advertising/deceptive marketing
reputation for honesty
- mitigate information asymmetries and lead to pareto-optimal allocations - only believe rational agents if falsehood is costly to them
Advantages of Potential Pareto Improvement
- more conducive to change than Pareto efficiency criterion - almost everyone may gain - underlies CBA, which means adding up benefits and costs
Kenneth Arrow thinks that Friedman ignores 2 main market failures
- negative externalities (Arrow focuses on pollution) - asymmetric information (firm knows more than consumers)
Kyoto Protocol
- no penalties for non compliance - developing countries like India and China excluded (fairness) - reduce emissions to below 1990 levels
multi-period games? key feature?
- non-Nash equilibrium can be achieved if there is an incentive to cooperate over a longer period of time. (even though defecting in one period would be beneficial)
public good
- non-rival (benefits obtained by one consumer are not subtracted from benefits available to others) - non-excludable
vote trading
- not caring about an issue can be valuable for a politician - exchange of votes - incentive to defect
Positive Approach to Policy Analysis
- objectives, behaviours, and interaction of individuals and groups who influence policy decisions - WHY policy takes the form it does (eg. voting, speical interests groups like lobbying, politician)
quotas
- often implemented using licenses - voluntary export restraint (VER) is an industry agreed and self-monitored quota (think collusion)
Normative reasons for trade policy (general)
- one country can sometimes can from interventionist policy (at the expense of the other country) - imperfect competition or economies of scale can also provide normative justifications
reasons for trade policy
- one country can sometimes gain from interventionalist trade policy at the expense of others - international transfer-seeking - imperfect competition or economies of scale can provide normative justification
Price Discrimination? applies to ?
- only B2B, price discrimination with at the consumer level is fine
4 Key Economic Concepts
- opportunity cost - marginalism - economic incentives - economic efficiency
the Cobra effect
- people offered bounty for killing Cobras --> people bred Cobras then killed them --> released into wild
what are estimates of resource use hard to make?
- persistent resources (infrastructures): problems w/ allocations and discounting - recycling: not all of a used resource is gone - consumption of renewables: should they count? - what about economic welfare? we should be using resoruces
government failure from
- properties of voting and electoral systems - interest group activity - direct self-interest
Terry Prachett
- proposition of government by respectable members of community who promise not to betray public trust - not taken seriously by the public because they know it will lead to betrayal
of the 3 types of crown corps what's best for gov to focus on ?
- public goods (type 1) (defense, police) for type 2 choose between regulated investor owned monopoly (normally best) OR Corn corp
rationality vs. social welfare
- rationality: selfishly maximizing own utility as an economically rational agent - social welfare: maximizing sum of everyone's utility
Friedman argues firms are not responsible for
- reducing poverty and eliminating discrimination - reducing pollution - pricing restraint - donations to the community are a form of "tax" on the companies shareholders UNLESS have self-interest for company
remedies for imperfect info
- reputation - markets for information - labeling/disclosure requirement - standards set by gov, organizations
policy
- set of rules, created and enforced by a governing body - create policies that are both fair and efficient
Liberal Economists
- taxation - minimal DWL because no interventions where there is no market failure and corrective policies (taxes on bads, subsidies for abatement) where there was market failure only DWL from: - taxes to finance transfers to the poor - disincentive associated with the "safety net" (eg. unemployment insurance)
Forms of Consequentialism
-Pure self-interest: An act is good if it has good consequences for me. -Nationalism: An act is good if it has good consequences for my country. -Cause fanaticism: An act is good if it promotes this cause (which can range from "preservation of nature" to "world communist revolution"). -Utilitarianism: An act is good if it adds to total happiness, or perhaps an act is good if increases the sum of all individual's attainment of their desires.
cases when protection is the wrong policy instrument
-Raising revenue: better to tax bads, property, income. -Military/cultural: better to subsidize production. -Domestic market failure: better to tax or subsidize directly. -Domestic redistribution: use the income tax/transfer system instead. -Employment: use monetary and fiscal policy. -Trade balance: use exchange rate.
profit sharing
-Suppose there is an industry that will sustain only one firm. Without a subsidy there is a coordination problem. With a subsidy entry is the dominant strategy for the subsidized firm, which discourages the foreign competitor
location of bads
-The NIMBY problem is that the relatively small number who live near to a toxic waste dump bear high costs. - Meanwhile the benefits accrue to a much larger but spread out group who are far from the waste site. - Locate waste where it generates the lowest costs. -Those who bear those costs should be compensated by the rest. - not realistic
examples of transfer seeking
-Theft and other economic crimes -Most litigation and probably much of the -financial market activity (esp. insider trading) -Business Lobbying -War (over resources) -Charity (this is usually considered to be 'beneficial' transfer-seeking)
Gains from Trade
-There are gains from specialization in production through trade -Trade allows more efficient production and increased world output -The gains are maximized when countries focus on their comparative advantages -This is true even when one country has an absolute advantage
pareto-improvements are rare in practice
-because the gains are larger than losses but it leaves open the question of whether gainers actually compensate losers.
market structure - degree and type of competitiveness
-concentration ratio - four firm concentration ratio
what is public enterprise
-directors and senior management is appointed by the government -debt is a liability of the government -the public enterprise's mandate explicitly goes beyond profit maximization
Examples of Restrictions on economic freedom
-even in highly market-oriented economies there are some voluntary transactions that are not allowed. i.e -sell your organs -sell (buy) drugs -sell alcohol to minors -to hire child workers -"people smuggling" -to sell babies
Market failure type 4: Imperfect Information
-exchange is guaranteed to be mutually beneficial only if both parties are rational and well-informed
distributive fairness
-final allocation of benefits (or goods) across individuals (or groups) is just (or morally acceptable) -egalitarianism -choice behind a "veil of ignorance"
Michael Bloch's Triple Bottom Line
-framework for sustainable growth People, Planet, Profit People - employees, community Planet - ecological impact, natural capital Profit - honest profit in harmony with people and planet
team's problem
-free riding, moral hazard problem
marginalist principle
-if marginal benefit > marginal cost, then policy should be carried out -most activities face diminishing marginal benefits and rising marginal costs - if a scarce resource has more than one potential use, then it should be divided up so that MBs are equal
potential pareto
-improvement is said to exist if re-allocation of resources allows those individuals who are net gainers to fully compensate the net losers, and still be better off i.e -removing rent control -ending bio-fuel -mandates -reducing the cheese tariff
Major policy areas
-international trade policy -environmental and resource policy -competition policy -regulation and public enterprise -innovation policy and intellectual property -macroeconomic policy`
pareto efficiency
-is attained when it is impossible to re-allocate the resources among a group of people in such a way as to make at least one person better off without making anybody else worse off -no DWL
Calder Decision Significance
-it all started with Calder -aboriginal title existed in BC!!! -sourced from the Royal Proclamation -reversed White Paper (1969) and assimilation policy -triggered modern day treaty making -SCC by Justice Hall: ---a communal or collective right ---burden on crown title ---inalienable except to the crown
examples of monopsony
-labour markets with a single (major employer) -single-payer health insurance systems -Air Force is sole buyer for military aircraft -Wal-mart, Amazon, Starbucks are not a true monopsonists, but they appear to have significant power bargaining with suppliers
Treaty One
-land quantum not fulfilled -reserve land unlawfully surrendered -erosion of land use -NRTA impacted treaties -Other impacts small pox settlers residential school Indian Act system
kleptocracy
-led by powers that exploit and steal natural resources
Incomplete property rights
-the idea is that everything has a clearly defined owner, then one party would not be allowed to harm the property of another without compensation -or to benefit from the other's property without paying
Problems with having no international law
-trade treaties used in environmental policy bargaining -leads to transfer seeking, especially because monitoring is extremely difficult
positive/descriptive
-trying to explain or describe why things are the way they are -what factors explain the actual conduct of government? -private interest approach to policy analysis because political or personal advantages
normative/prescriptive
-we are trying to suggest what governments SHOULD do -what should the role of government be? -public interest approach to policy analysis
institutions
-we create institutions that govern how transactions take place -creating institutions and implementing policies are both costly, and we have to trade-off the gains that we get from fixing market failures against these costs -be wary that institutions and policies may serve special interest groups, or self-serving bureacrats
regulatory capture
-when a government agency, created to serve the public interest, instead advances the commercial or special interests that dominate the industry it is charged w/ regulating, it is said to be CAPTURED - a captured agency is worse than no regulation
Distortion
-when policies change the level of output produced and consumed away from Qc.
2 key characteristics of natural monopolies
1 - Capital intensive (implies an average total cost that declines over a considerable range of output) (capital requirements that are proportional to output are not what lead to natural monopoly) 2 - Physical network ( large share of capital is a physical network linking the producer/distributor to the consumer: wires, pipes, cables, tracks.
3 characteristic (typically) of crown corps?
1 - directors/management appointed by government 2 - no bankruptcy protection 3 - mandate beyond profit maximization
6 cases where trade protection is wrong policy instrument?
1 - raising revenue - tax bads/property instead 2- military/cultural - better to subsidize production 3- domestic market failure - better to tax/subsidize directly 4- domestic redistribution - use income tax/transfer system 5- employment - use monetary/fiscal policy 6- trade balance - use EX rate
3 kinds of crown corps ?
1 - state provision of public goods (defense, police) 2 - natural monopolies (private goods but due to declining AC curve would not be competitively supplied) 3 - publicly provided private goods that could be potentially competitively supplied (public schools, ICBC)
counter to Friedman's 3 points on corp responsibility?
1 - undemocratic ? - no, shareholder's could vote for the firm to behave a certain way 2- Unwise? firms often/usually know more about their products and processes than any government regulator. 3 - ineffective? - not if shareholders and consumers endorse the firm's goal
Normative Approach to Policy Analysis (4 areas of legit gov attention)
1) Economic Efficiency: make the per capita benefits from consumption of goods/services as high as possible 2) Macroeconomic stabilization and growth: eg. stable business cycle, keep unemployment rates low, inflation rate low, promote economic growth 3) Fairness: make overall size of "economic pie as large as possible" eg. social welfare, taxation, healthcare 4) Other social objectives: eg. national unity, cultural identity, limits on gambling Any normative rationale for policy should be based on one of these 4 categories
Milton Friedman
1) duty to employers - corporate executive has responsibility to owners - to make profit while following basic rules as principal-agent - if corporate executive wants to spend his own time and energy on certain social responsibilities, he is doing as a principal, not as an agent 2) taxation without representation - corporate executive would be spending someone else's money for a general social interest. "social responsibility" reduce returns to stockholders, he is spending their money. If his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money. - whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for "social" purposes 3) conscious efforts to promote social goals are unnecessary since competition is a more effective mechanism to promote public welfare - executive isnt an expert on how to fix social issues 4) shareholders can fire, customers can leave - The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his "social responsibility", he is spending his own money, not someone else's.
freedman's "rules of the game"
1) engage in open and free competition 2) deception and fraud not allowed
2 kinds of efficiency
1) is a given level of output being produced at lowest cost/cost (product efficiency/management efficiency) 2) is the appropriate amount of each good being produced? Pareto efficiency or allocational efficiency
6 solutions to environmental externalities?
1- Internalize externality via unified ownership (mergers) 2- Quantity controls/standards 3- Taxes on polluting activities 4- Subsidies for abatement 5- Assignment of property rights (torts and/or creation of market for pollution rights) 6- Social responsibility, utilitarian ethics, etc.
argument for profit maximization
1- manager's duty as an employee and an agent overrides social responsibility 2 - doing otherwise is a form of "taxation without representation" 3 - Pursuing profit leads to Pareto efficiency
5 reasons to be skeptical of net employment creation from protectionist trade policy
1- negative effects on downstream sectors 2- jobs moved rather than created 3- export jobs reduced by foreign retaliation 4- creates DWL and shrinks overall economy 5- export jobs reduced by exchange rate appreciation
8 normative justifications for trade policy
1- raising revenue 2- military, cultural or other econ objectives 3 - exploit monopoly power in export markets (exports only) 4- infant industry argument 5- profit shifting (exports only) 6- domestic market failure (externalities)' 7- domestic redistribution 8- retaliation vs foreign trade barriers
4 potential solutions to market failure
1- regulation 2- taxation 3- Legal responsibility (torts) 4- social responsibility (moral/ethical obligations)
Friedman's 3 points on Corp social responsibility
1- undemocratic 2- unwise (no expertise in this area) 3- ineffective cause manager might be fired and/or customers might defect (costly to be responsible)
5 Factors affecting harvest choices
1- what is the intrinsic growth rate? 2- how big and common are the shocks? 3- Is it economic to use the resource? 4- Is it economic to save the resource? 5- Cyclical management
Argument for profit maximization
1. A manager's duty as an employee and an agent of the principal overrides his or her alleged social responsibilities. 2. Pursuing social responsibilities other than profit maximization is a form of "taxation without representation". 3. Pursuing profit leads to Pareto efficiency (Invisible Hand).
Pro Lobbying
1. Actually seeks to produce something valuable like information (consultants to gain time with policy-makers) 2. Economic Interest: helps offset basic policy biases 3. In absence, gov't even more tempted to gain S/T political advantage
Limitations to Pareto Efficiency
1. Almost never achieved in practice b/c # of agents involved, different preferences ,production and consumption externalities 2. doesn't mean socially desirable distribution of resources 3. L/T investments involving intergenerational trade-offs such as combating climate change
Difference between Friedman and Arrow
1. Arrow sees market failure as a more common and serious problem than Friedman, who tends to trust the working of the market. 2. Friedman emphasizes that it is the government that is in the best position to know how to correct social problems whereas Arrow argues that it is the firm that may be better positioned. 3. Friedman and Arrow seem to have different ideas in mind when they talk about acts of social responsibility.
Macrostabilization and Economic Growth
1. Business activity is cyclical 2. Unemployment significant but variable fraction 3. Price level is usually rising
Special Interest Groups
1. Economic Type: concerned w/ own economic self interest 2. Social Type: those trying to promote moral/ social values eg. individual unions, industry lobbies, professional associations
corporate activity that aims to help the community but reduces profits is:
1. IRRESPONSIBLE because of the fiduciary duty to maximize profits 2. UNDEMOCRATIC because these decisions should be made through the democratic process (the political system) 3. UNWISE because a business person has no expertise to identify and fix social problems 4. INEFFECTIVE because a manager that acts contrary to profit maximization might be fired
Why Social Interest Groups are Effective
1. Member of group are one-issue voters (they will vote candidate that comes closest to their position) 2. There are strong incentives for policy-makers to be very sensitive to demands of social interest (New media, campaign contributions)
Intervention for Fairness and Other Rationales
1. Military for national defence 2. Cultural justification (keep a French alive) 3. Paternalism (protect ppl from themselves)
Normative Reasons for Intervention
1. Monopoly Power 2. Efficiency and market failure 3 Macro stabilization 4. Fairness 5. Others
absolute advantage
A country has an absolute advantage in the production of good X if it has higher productivity than other countries in the production of good X
source of comparative advantage
A country that is relatively abundant in a factor of production will tend to have a comparative advantage in goods that use that factor intensively More labour and less capital =⇒ export labour intensive goods and import capital intensive goods
Canada's Commissioner of Lobbying
A government body that... - reported registered active lobbyist increased dramatically - registers unions, trade associations, consultants - Has Popular Topics: international trade, gov't procurement, regional economic development
If the government passed laws making the manufacturers install more safety equipment in the cars, which effects would we predict? A. more non-fatal accidents B. fewer pedestrian deaths C. a higher percentage of fatal deaths D. All of the above
A.
which meets the two requirements for being defined as public goods? A. airwave broadcast of the Super Bowl B. advertising minute in the Super Bowl C. primary education D. hospitals E. the chemical "recipe" for a drug
A.
Comparative vs Absolute Advantage?
Absolute advantage= simply having higher productivity in the production of a good Comparative advantage= having a lower opportunity cost than other countries
Kants 1st Rule, the Categorical Imperative
Act according to principles that are universalizable
categorical imperative
Act only according to that maxim whereby you can at the same time will that it should become a universal law without contradiction.
Imperfect Competition
Adam Smith acknowledge: - monopoly power distorts the efficient allocation of resources - public goods are likely to be undersupplied - gov't are needed to protect private property, personal safety and enforce contracts Individual firms have considerable control over market price and maybe barriers to entry eg. Hydro-Quebec as Crown corporation
Marginalist Principle
Any policy should be carried out as long as the marginal benefit exceeds the marginal cost
How will the market save us?
As we deplete a resource the price goes up and demand goes down We can create markets for trading pollution or extraction/consumption rights
Examples of limitations on consumer sovereignty
BBC and the license fee legal drinking ages government-funded anti-smoking campaigns China's one child policy
Gresham's law
Bad money drives out good money (silver coins)
Asymmetric Information
Buyers and sellers often lack info that is relevant to purchase and production decisions. Consumers: info about quality of products PRIOR to purchase Firms: info about the demand of new product, what actions rivals are taking; end up in unprofitable markets
draw the 2 types of DWL caused by import protection
GRAPH
priced
priced interaction is the normal bids and asks of buyers and sellers in a market. Benefits are paid for and costs are incurred voluntarily.
types of trade policy
tariffs quotas preferential government procurement adminsitrative barriers other import-discriminating regulations
rent seeking/ transfer seeking
process of using resources to redistribute wealth from others, rather than create new wealth - bigger share of pie without growing the pie
Which is not an externality matched to a 3rd party? A. pulp mill effluent --nearby fishery B. fixed location apiary --nearby blueberry fields C. increase in Chinese demand for Chateau Petrous wine --French Petrous lovers D. carbon emissions from coal burning --residents of Maldives E. Alice's highway speeding --Bob's death in accident
C.
Main causes of global warming (4)
Carbon dioxide, Methane, Nitrous Oxide, CFC 12 and 11.
Hotelling's Theory of Political Parties
assumptions - uniform distribution across the spectrum - people choose the party that is closest to them - one dimensional - each of two parties wants to maximize its voters and ends up moving to the middle
The CR4?
Concentration ratio: add up the market share of the 4 largest firms
Fiscal Federalism
Concerns how various public-sector tasks should be allocated between different levels of government (How to split up tasks between fed, provincial, local) Guiding Principle: tasks should be delegated in lowest level of gov't that is capable of undertaking it efficiently
with perfectly inelastic demand monopolist, extra surplus turns into profit, but there is no ______________
DWL
Taxation
tax pollution subsidize abatement
when the market is in a competitive equilibrium, government policies cause __________
DWL and Pareto inefficiency
Who came up with the idea of comparative advantage ?
David Ricardo
imperfect information
asymmetric information; if consumers cannot distinguish, existence of bad products drive out good ones out of the market
Marginalize applied to budgets
DIAGRAM
Comp law in the US - enforced by who ? who can bring criminal suits?
DOG, FTC and others Only DOG can bring criminal action
The Laffer Curve
Diagram
Direct Democracy
Direct voting by the citizens on policy issues eg. local city/ municipal level
Kants 2nd Rule, the Practical Imperative
Do not treat people purely as a means
Golden Rule
Do unto others as you would have other do unto you.
Pareto improvement
at least one person is made better off while no one is made worse of
from the perspective of an intermediate economics textbook, what s the main reason that monopolies are considered bad? A. lack of competition leads to low managerial efforts B. Monopolists extract consumer surplus and turn it into profit C. Without a competitive threat, firms don't innovate D. Monopolists spend too much on advertising E. When constrained to charge the same price to each consumer, there is a DWL due to too little output
E.
which meets the two requirements for being defined as public goods? A. Mosquito control in Manitoba B. Herd immunity to a virus C. Atkinson point lighthouse D. Israel's Iron Dome missile defence system E. The Mona Lisa
E.
Approval Voting
Each member of committee votes for all the alternatives, with the winning project being the one w/ most approved votes
nash equilibrium
Each player chooses the action that maximizes his utility, taking the other players action as given. Strategies are in equilibrium when every strategy is a best-response to every other strategy.
Saunders
Economists value a life at CAN$8.16m Young vs. old: "Life is an empty vessel that fills up, or a candle that burns down" Discounting for age: at 10yrs you are worth $8m, but by 70yrs only $2m However, some philosophers say the value of a life should be measured by the victim's emotional investment in the world and its future. This discounting for age lead to a reduction in the value of the 'Clean Skies' ecology bill from $44b to just $7b Rich versus poor: is another important issue
Transitional Gains Gap (Tullock)
Eg. taxi owners lobby gov to limit number of taxi medallions which raises taxi fares - they want medallions to be given away free to existing owners - new entrants would have to buy medalliosn from owners that are leaving the industry - new entrants make only normal profits as the long run expected profit from operating a taxi is capitalized into the market price of a medallion - like a cartel - All of the true profit from cartel's creation is captured by those existing owners at the time the cartel was created
ethical egoism vs. psychological egoism
Ethical egoism: moral agents SHOULD do what is in their self-interest Psychological egoism: self-interest IS what motivates people in fact
Formula for the growth curve (harvesting)
G = rS (1 - S/K)
Industrial structure (3)
Goods - primary (direct use of resources) - secondary (manufacturing, construction) Services
Frictional Unemployment
People Take time to change jobs
economic freedom
People are free to enter VOLUNTARY agreement with others about production, distribution, consumption of goods and services [WHAT PEOPLE DO]
Public Goods
Implies incomplete property rights 1. non-rival in consumption 2. non exclusive - can cause market failures b/c private markets WILL NOT provide them
Paul Krugman
Imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.
strategic voting
In elections with more than two candidates, when a voter supports a candidate other than his or her sincere preference in order to prevent an undesirable outcome
consumer sovereignty
People have a right to his/ her own preferences and tastes for goods and services as long as those tastes don't impinge rights of others directly eg. laws against prostitution, production eg. actions to deter undesirable behaviour like smoking eg. rights are withheld from the young and mentally infirm
social contract
Individuals consent, either explicitly or tacitly, to surrender some of their freedoms and submit to the authority of the state, in exchange for protection of their remaining rights
Commissioner of Competition - name?
John Pecman, 2013, 5 yr term
Learner index equation ?
L = (p - mc)/ p can range from 0 to 1. zero is perfect competition
Lawrence Summers
Let Them Eat Pollution - Chief Economist and World Bank 3 arguments for migration of pollution 1) Lost wages as a result of pollution - the cost is higher in richer countries with higher wages than in poor countries 2) Demand for standard of living is higher in richer countries 3) Costs of pollution is non-linear; initial marginal costs are lower so put in underpolluted countries
lobbying
Lobbying occurs when an individual is paid to communicate with a public-office holder in an attempt to influence government policy Principles of the Lobbying Act - free and open access to gov is an important matter of public interest - lobbying public office-holders is a legitimate activity - good for public office holders and the public to know who is attempting to influence government - system for registration of paid lobbyists should not impede free and open access to gov.
Negative externalities in environmental economics
Local: Garbage, sewage, etc. Regional/National: Toxic waste disposal International: Greenhouse gases, ozone depletion, acid rain
Paradox of Voting
Majority voting produces no winners and pair-wise is subject to manipulation by agenda setter
Point Voting
Members given # of points to be allocated among alternatives - takes intensity of feeling into account - project w/ most points win
Regulatory Approvals on Major Projects and Aboriginal Peoples
National Energy Board Environmental Assessment: BC Environmental Assessment Act Canadian Environmental Assessment Act Mackenzie Valley Resource Management Act Fisheries and Wildlife Legislation Provincial Energy and Utilities Regulators Provincial Crown Land Agencies (Agriculture)
Joseph Stiglitz
Stiglitz's main points in "The Price of Inequality": -Main cause of inequality is through "rent seeking" by the wealthy -Wealthy wield political power that shapes monopolies, obtains favorable treatment (e.g . regulation) and ensures low taxes -Inequality is therefore self-perpetuating, and transfers accross generations since wealth is inherited -Not only unfair but also hurts productivity
Litigation
One of many services that is transfer-seeking by attempting to redistribute wealth. Pro: necessary for settling disputes Con: used to fight false claims; discourages innovation b/c excessive product liability
Median Voter Principle
Policy platforms will closely match preferences of median voter -might be inefficient
Thomas Malthus
Population grows geometrically whereas food production increases arithmetically: - population grows until it can't feed itself - war, pestilence and famine act as restraining mechanisms
Malthus' key point
Populations tend to grow geometrically (2,4,8,16) whereas food production grows arithmetically (2,4,6,8,10)
Kenneth Arrow
Problems with Profit Maximization - assumes competition between firms (what about monopolies?) - distribution of income from profit maximization is unequal - does not allow for expression of altruistic motives Two Cases when Profit Maximization is NOT efficent - negative externalities; eg. pollution and congestion are not beneficial transactions where firms pay costs - information asymmetry between buyer and seller (eg. used car lemons, bad for buyer and seller), (eg. pharmaceuticals), worker and employer on working conditions ----- assumption of buyers learning from experience not good if one bad experience is damaging enough Institutions for Social Responsibility -legal regulation -tax -law, tort -ethics
4 potential solution to market failure
Regulation Taxation Legal responsibility Social responsibility
Structural Unemployment
Some sectors grow, others shrink. Workers in sectors that are contracting may need retraining before they can be usefully employed in other sectors
reformulated practical imperative
Respect the autonomy of others. No coercion, no deception
Corporatist Approach
Role of Government: France, Japan, South Korea
Purist Approach
Role of Government: US
Foundational Documents
Royal Proclamation 1763 Constitution Act, 1867, s. 91(24) Rupert's Land Act Natural Resources Transfer Agreement (1930) Constitution Act, 1982 s. 35
externality problem is caused by
SMC > PMC
3 justification for ethical egoism
Smith's invisible hand: when we each pursue our own self-interest, we are collectively better off self-defeating altruism: when we try to help others it fails because we invasively impose our own preferences or charity is degrading and debilitating rand: egoism recognizes the supreme value of each individual life. the alternative, altruism, requires sacrificing the individual for the good of others, thus destroying the highest value
Adam Smith and Ayn Rand - 2 different justifications for ethical egoism
Smith: When we each pursue our own self-interest, we are collectively better off. When we try to help others it is unsatisfactory because a) we invasively impose our own preferences, b) charity is degrading and debilitating. Rand (Atlas Shrugged): Egoism recognizes the supreme value of each individual life. The alternative, altruism, requires sacrificing the individual for the good of others, thus destroying the highest value.
ethical egoism - 2 justifications
Smith: when we pursue own self-interest, we are better off; when we try to help others, it is unsatisfactory because a) we invasively impose our own preferences, b) chairty is degrading and debilitating Rand: egoism recognizes the supreme value of each individual life. Alternative of altruism requires sacrificing the individual for the good of others, thereby destroying the highest value
Infant industry argument - theory vs practice
THEORY - keep out a given import to drive up domestic prices and nurture domestic production. Later, domestic industry may be able to compete without protection (they grow and bring down their costs) PRACTICE - government has to not be captured by industry, domestic producers may never become competitive, or could have done so without the help.
bureaucracy
The bureaucracy is a non-elective government body responsible for implementing the decisions of elected delegates Principal-agent problem: Voters are principals who delegate authority to civil servants and ask them to act on their behalf. But bureaucrats might have their own interests which conflict with those of the principals (conflict of interest). This is especially a problem when monitoring is difficult and expensive. Objectives of bureaucracies: high salaries and perquisites in office, tenure in office, agency growth, etc
externalities problem
positive or negative effect an activity has on 3rd party
Transfer Seeking
The process of devoting resources to obtain/ retain economic benefits through the redistribution of the wealth of others, rather than creating new wealth
relativism
There is no absolute right or wrong but we can say acts are morally acceptable so long as they conform to my society's approved practices. Problems - moral views differ within societies - aren't some things wrong whenever
dull incentives
Total redistribution (to equality) gives no incentives
who does Canada trade the most with
US 60% $402 billion exports
first welfare theorem
Under perfect competition, markets achieve Pareto efficiency.
dependence of VSL on income
VSL increases with income according to both traditional and modern • spend $ to improve things for rich people/countries?
Opportunity Cost
Value of the best forgone alternative eg. new recycling centre on city land; if sold for $2million= OC for building centre
John Rawls
Veil of Ignorance -Rawls said to decide on what is fair you must put yourself in the "original position" behind a "veil of ignorance". -Behind the veil you don't know if you will be healthy or sickly, tall or short, black or white. -Hence you should design rules that take into account how the rules would affect your well-being in any possible state you might find yourself in. -Maximin principle: Preference for the welfare of the least advantaged. -Veil of ignorance useful even if you reject maximin
utility functions not always rational
We might not be able to trust people to maximize their own long-run/life-time utility
individual rights, freedoms, well being
What makes a government legitimate
Market Failure
When private markets fail to achieve Pareto efficiency 1. imperfect competition 2. asymmetric info 3. incomplete property rights 4. Bad gov't polices
utilitarianism
Whose good? Everyone's. What is good? utility/happiness/pleasure - things such as grades, jobs are means, not ends (happiness) Acts are good if they can be expected to raise the sum of all human welfare
egoism
Whose good? The individual's own. What is good? Up to him or her to decide.
" " efficiency defense?
Williamson
Larry Summers
World Bank Chief Economist -argue for dirty industries and toxic waste to be be relocated to poor countries. 1. Costs of proximity to toxic waste are related to lost earnings cause by health problems. Such costs are higher in higher in rich countries where wages are higher. 2. Most toxic waste has been generated in densely populated, industrial countries. Disposing of this waste locally puts them very high up the marginal cost of disposal curve compared to sparsely populated non-industrial countries. 3. Demand for a clean environment is higher in rich countries with high life expectancies. - low income gave a comparative advantage in poor countries
rent seeking
practice of manipulating public policy or economic conditions as a strategy for increasing profits.
monopolisitc competition
a large number of sellers of differentiated varieties of the same product
Market Economies
a market economy is one in which prices and quantities for most goods and services are determined in competitive markets.
individual sovereignty
a philsophical construct that is widely embraced in the Western world. It is key to the notion of private enterprise. - economic freedom - consumer sovereignty
what does "priced" mean?
a priced interaction is the normal bids and asks of buyers and sellers in a market. Benefits are paid for and costs are incurred voluntarily.
Fiscal externality/moral hazard:
a problem that occurs when "splitting the bill" leads to excess consumption
fiscal federalism
a progressive global tax on wealth
pareto-optimality problem
a rational agent participating in a free market may fail to maximize social welfare
problem with pareto optimality
a rational agent participating in a free market may fail to maximize social welfare
oligopoly
a small number of sellers compete, recognizing they are large enough to affect the price
paradox of value
price is not determined by total value, but marginal value
kants 1st rule, the categorical imperative
act according to principles that are universalizable
the social contract rule
act according to the requirements of a hypothetical contract mutually agreed upon behind the veil of ignorance
externalities
activity by-products that generate "non-priced" costs or benefits affecting 3rd parties
market failure type 2: Externalities
activity by-products that generate "non-priced" costs or benefits affecting 3rd parties.
egoism
acts are good if they benefit me
utilitarianism
acts are good if they can be expected to raise the sum of all human happiness (utility)
consequentialism
acts are good if they have good consequences
Rawl's justice theory
agreements reached behind a veil of ignorance are fair, people in original position choose 2 principles of justice
Kant's categorical imperative
aka moral rules approach determines duties/obligations that people who are rational and ethical are required to follow Must answer YES to: 1. Are these rules feasible (will everyone follow)? 2. Would I want everyone to act this way? (Golden Rule)
Pareto Efficiency
aka. Allocation Efficiency resources are allocated in such a way that it is impossible to make anyone better off without hurting someone else
Management Efficiency
aka. Cost Efficiency - cost is minimized for the output chosen - achieve least-cost production
rationalization
allows people to commit fraud w/o seriously compromising own ethical principles ex: reporting scores on a quiz, paid by performance --> people will typically inflate their scores only a little to gain $
conventionalism
an act is morally acceptable if and only if it is permitted by social conventions (when in Rome, do what the Romans do)
Voluntary export restraint
an industry agreed and self-monitored quota
Efficiency loss due to market failure-negative externalities
are over-provided
Efficiency loss due to market failure-positive externalities
are under-provided
Efficiency loss due to market failure-public goods
are under-provided by the market
"ad valorum"
as a percentage of price
Paradox of Value
price reflect marginal value NOT total; price inversely related to value; eg. water is cheap b/c it's abundant but diamond is expensive b/c rare
modern approach
calculate value of a statistical life (VSL)
Competition law in the US - name? jurisdiction?
called "anti-trust" law (both federal and state laws exist)
Competition law in Canada - what law applies ?
can be both criminal and civil
Rawlsian approach
choice behind a "veil of ignorance"
psychological egoism
claim that self-interest is why motivates people in fact
Section 45 of Comp Act - 3 points, and possible penalty
commits and offence when with a competitor agrees or arranges to: - fix, maintain, increase or control the price/supply of a product - allocate sales, territories, customers or markets for the production or supply of a product - to fix, maintain, control, prevent, lessen, or eliminate the production or supply of the product Guilty of an indictable offense and liable on conviction to imprisonment up to 14 years or to a fine not exceeding $25 million, or both - think - PRICES - GEOGRAPHY - SUPPLY
economic freedom
consenting adults can engage in mutually advantageous transactions
issues with benefits principle
consequences like moral purity don't count toward net benefit unless they yield benefit to someone
utilitarianism
consequentialist ethical theory; actions are good if it increases total utility or happiness *implies equal utility*
benefits principle
consequentialist ethical theory; fairness should depend on distribution of net benefits to affected parties
group fairness
considers treatment of larger groups based on gender, race, ethnicity
management efficiency/cost efficiency
cost is minimized for the output chosen (requires product efficiency)
Regulation
create production standards set maximum emission levels implement safety inspections
Conspiracy and the burden of proof?
current law allows the courts to "infer the existence of conspiracy with or without direct evidence of communication"
optimal decision making
making benefits as large as possible - every activity should be carried out to the point when MB = MC
individual fairness
making sure each person is treated fairly
Learner Index. What does it measure?
market power
Market failure type 1: imperfect competition
market structures where the assumptions of perfect competition break down -sellers and/or buyers exert some control over prices -entry and/or exit is blocked
monopsony
markets where there is a single buyer; leads to prices that are lower than competitive equilibrium
Herfindahl Index?
measure competition sum of the squares of market shares of an entire industry 1= monopoly >.25 indicates highly concentrated .15 -> .25 indicates moderate concentration
Sellers have market power
monopoly cartels oligopoly monopolistic competition (price is set above marginal cost) (quantity produced is lower than competitive equilibrium)
social responsibility
morale obligations to obey ethical codes
deindustrialization
moving from primary and secondary to services
cartels
multiple sellers who collude on price
property rights assignments
national jurisdiction extended from 12 to 200miles from the coast
Arrow emphasizes two types of market failure
negative externalities asymmetric information
Crowding effects
newborn entities must compete with large existing entity stocks for survival
product efficiency
no inputs are wasted and a given level of output cannot be produced w/ fewer inputs
Production Efficiency
no inputs are wasted and; a given level of output cannot be produced with fewer inputs
Is "conscious parallelism" illegal?
no.
rule utilitarianism
obey more rules, which if universally followed, would maximize social utility
fair equality of opportunity principle
part of 2nd principle of justice (Rawl's); positions in society should be open to all
difference principle
part of 2nd principle of justice (Rawl's); rules should benefit most disadvantaged similar to maxi-min principle
Peltzman effect
people adjust their behavior to a regulation in ways that counteract the intended effect of the regulation
fraud triangle
people will commit fraud if 3 conditions are met 1. opportunity 2. motive 3. rationalization/moral disengagement
sensitivity to framing
perceptions of fairness are sensitive to framing *implications: easily manipulated, inconsistent*
quotas (quantitative restrictions)
physical limits on quantity imported
paternalism
placing limits on a person's liberty or autonomy for their own good. eg. safety requirements, restrictions on narcotics?
Law of Unintended Consequences
policies often fail to help their intended beneficiaries because of "perverse incentives"
Policy and international problems?
policy can only work were it is possible to: 1- assign property rights 2- internalize externalities 3- provide public services On an international level this is very hard. Incentive to deviate. Transfer seeking incentivised. Monitoring is difficult.
positive analysis vs. normative analysis
positive analysis: what actual behaviour and policies are normative analysis: describe what should or ought to be done - individual interests can outweigh normative justifications
Rule of Law v. freedom
positive correlation between Rule of Law and freedom of information, speech
Regulation - pros and cons as solution
pros - can regulate and have standards - pollution and asymmetric info cons - takes time to implement - hard to make it flexible to different situations, yet enforceable - costly
Litigation
pros - combatting fraud, negligence - pay for damages cons -costly -not suitable in certain scenarios -not suitable for repeating scenarios
taxation
pros - good for combating pollution, not so much asymmetric information - more flexibility - raises revenue cons - not good for controlling safety - firms try to work around taxation specific rules or charge higher prices
ethical code
pros - good for reputation b/c of competition - prevalent in professional ethical codes - handshake - "my word" cons - only work if widely accepted; only applies in situations when firms have a lot more information - let consumers make informed choices
fairness v. efficiency
public policies dealing with fairness result in trade-off between fairness and efficiency due to incentive effecs
cost-benefit analysis (CBA)
quantify costs and benefits in monetary units to compute net benefits (based on utilitarianism, consequentialist)
potential Pareto-improvement
re-allocation of resources allows those individuals who are net gainers to fully compensate the net losers, and still be better off
Laffer curve
represents relationship between possible tax rates (0-100%) and tax revenue generated; implies taxable income elasticity
consumer sovereignty
right to one's own tastes and preferences - implies the ultimate determiner of what will be made and sold and consumed is the consumer
Competition
rivalry among buyers & sellers in a market
procedural fairness
rule-based ethical theory; system is fair if procedures that determine outcomes are fair DIFFERENT from distributive fairness (consequentialist)
moral rule (2)
satisfy 1) universality: I want everyone to follow that 2) reversibility: the rule should apply to me
adverse selection
seller doesn't know the buyer's 'type', and is unable to correctly screen the types so that it is much more likely to select the bad types
social contract approach
set up appropriate rules to guide entire societies; fair if people will voluntarily join the system
boxing and ballet game
should coordinate and agree on action
adverse selection
situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality.
carrying capacity
stock of entities reaches its maximum size where growth is zero
"normative"
subjective
Opportunity cost EXCLUE
sunk cost
Adam Smith
the invisible hand: An individual generally neither intends to promote the public interest nor knows by how much he is promoting it... By directing industry in such a manner as its product may be of greatest value, the entrepreneur intends only his own personal gain, and he is in this aim... led as if by an 'invisible hand' to promote an end which was no part of his intention. "It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard for their own self-interest." eg. Apple makes better iPhones for their own benefit - Very little role for government intervention in competitive business - The basic question with respect to any public policy proposal is "Why can't the private sector do it?" -Smith recognized that government needs to reduce monopoly power and provide public goods such as national defence, parks and roads
"abatement"
the lessening/reduction of something
consequentialism
the morality of an action depends solely on the consequences it brings about; the right thing is do whatever will produce the best consequence - utilitarianism or egoism Problems - what are the good outcomes we care about?
willingness to pay
the total utility an agent gets from a good, expressed in dollars
consumer sovereignty
the ultimate determiner of what will be made and sold and consumed is the consumer herself
opportunity cost
the utility an agent gets by doing (the best) something else with their time/effort
Opportunity Cost
the value of the best foregone alternative
relativism
there is no absolute right or wrong but we can say acts are morally acceptable so long as they conform to my society's approved practices
Efficiency loss due to market failure-Imperfect competition
there is too little output produced (monopoly) and too little labour employed (monopsony)
DWL from lobbying
time, resources used by economic interst groups to obtain transfers from others is a transfer seeking cost and adds to DWL
vertical equity
treating people in different circumstances in a suitably different way ex: progressive income tax brackets
horizontal equity
treating people in similar circumstances the same way ex: equal pay for equal work