slide1 l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Applied Microeconomics PowerPoint Presentation
Download Presentation
Applied Microeconomics

Loading in 2 Seconds...

play fullscreen
1 / 99

Applied Microeconomics - PowerPoint PPT Presentation


  • 552 Views
  • Uploaded on

Applied Microeconomics Applied Microeconomics Economics of the Environment ECONOMICS OF THE ENVIRONMENT The environmental problem use of the environment as: an amenity a source of primary products a dump for waste The economy and the environment Factor services Goods and services

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Applied Microeconomics' - Sophia


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Applied

Microeconomics

applied microeconomics

Applied Microeconomics

Economics of the Environment

economics of the environment
ECONOMICS OF THE ENVIRONMENT
  • The environmental problem
    • use of the environment as:
      • an amenity
      • a source of primary products
      • a dump for waste
slide4

The economy and the environment

Factor services

Goods and services

Waste

Amenity value

Resources

(Clipart for the environment: e.g. countryside scene)

economics of the environment5
ECONOMICS OF THE ENVIRONMENT
  • The environmental problem
    • use of the environment as:
      • an amenity
      • a source of primary products
      • a dump for waste
    • conflicts between these uses
economics of the environment6
ECONOMICS OF THE ENVIRONMENT
  • The environmental problem
    • use of the environment as:
      • an amenity
      • a source of primary products
      • a dump for waste
    • conflicts between these uses
    • population pressures and limited resources
accelerating environmental damage

Total

damage

Accelerating environmental damage

Environmental damage

O

W1

Waste

economics of the environment8
ECONOMICS OF THE ENVIRONMENT
  • The environmental problem
    • use of the environment as:
      • an amenity
      • a source of primary products
      • a dump for waste
    • conflicts between these uses
    • population pressures and limited resources
    • case for optimism
economics of the environment9
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
optimum level of an activity that involves pollution

MCpollution

P4

P3

P2

Q2

Q3

MB-MC

Optimum level of an activity that involves pollution

Costs and benefits (£)

Q4

Q1

O

Output of good

economics of the environment11
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
  • Market failures
economics of the environment12
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
  • Market failures
    • environment as a public good
economics of the environment13
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
  • Market failures
    • environment as a public good
    • externalities
optimum level of an activity that involves pollution14

MCpollution

P4

P3

Q3

MB-MC

Optimum level of an activity that involves pollution

Costs and benefits (£)

Q4

Q1

O

Output of good

economics of the environment15
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
  • Market failures
    • environment as a public good
    • externalities
    • ignorance
economics of the environment16
ECONOMICS OF THE ENVIRONMENT
  • An optimum use of the environment
    • different approaches to sustainability
      • free-market approach
      • social efficiency approach
      • conservationist approach
      • Gaia approach
    • making optimum decisions
  • Market failures
    • environment as a public good
    • externalities
    • ignorance
    • inter-generational problems
economics of the environment17
ECONOMICS OF THE ENVIRONMENT
  • Market-based policies
    • extending private property rights
    • charging for use of the environment
an emissions charge

MSC

P2

MB = MSB

L2

An emissions charge

Costs and benefits (£)

P1 = 0

L1

Level of emission

economics of the environment19
ECONOMICS OF THE ENVIRONMENT
  • Market-based policies
    • extending private property rights
    • charging for use of the environment
    • environmental ('green') taxes
a socially efficient green tax

Socially efficient

green tax

P1

Q1

A socially efficient green tax

MCpollution

Costs and benefits (£)

Q2

O

MB-MC

Output of good

economics of the environment23
ECONOMICS OF THE ENVIRONMENT
  • Non-market-based policies
    • command-and-control systems
      • technology-based standards
      • ambient-based standards
      • social-impact standards
    • voluntary agreements
    • education
economics of the environment24
ECONOMICS OF THE ENVIRONMENT
  • Tradable permits
    • how they work
    • assessment of the system
  • Can we rely on governments?
    • game theory and international agreements
outcomes for countries from strategies of pollution reduction
Outcomes for countries from strategiesof pollution reduction

Other countries’ strategy

None cut

pollution

Some cut

pollution

All cut

pollution

A

B

C

Small loss

for USA

Gain for

countries not

cutting pollution

Large loss

for USA

Slight gain for

other countries

Cut pollution

Moderate

net gain for all

USA’s

strategy

D

E

F

Don’t cut

pollution

High gain

for USA

Small gain for

other countries

Fairly high

gain for USA

Loss for other

countries

No gain

for any

country

applied microeconomics26

Applied Microeconomics

Traffic Congestion and Transport Policies

traffic congestion and transport policies
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • The allocation of road space
    • demand for road space
      • a derived demand
      • determinants of demand
increase in car ownership
Increase in car ownership

Cars per thousand population

UK

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

increase in car ownership29
Increase in car ownership

USA

Cars per thousand population

UK

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

increase in car ownership30
Increase in car ownership

USA

Belgium

Sweden

Cars per thousand population

UK

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

increase in car ownership31
Increase in car ownership

USA

Germany

W Germany

Belgium

Sweden

Cars per thousand population

UK

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

increase in car ownership32
Increase in car ownership

USA

Germany

W Germany

Belgium

Sweden

Cars per thousand population

UK

Spain

Energy and Transport in Figures (EC, 2002); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

traffic congestion and transport policies33
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • The allocation of road space
    • demand for road space
      • a derived demand
      • determinants of demand
      • the price and income elasticities of demand
motoring costs as of uk household expenditure 2000 1
Motoring costs as % ofUK household expenditure: 2000/1

Motoring costs as % of

household expenditure

Quintile groups of household income

slide35

Passenger transport in Great Britain

(percentage of passenger kilometres by road)

slide36

Passenger transport in Great Britain

(percentage of passenger kilometres by road)

slide37

Passenger transport in Great Britain

(percentage of passenger kilometres by road)

slide38

Passenger transport in Great Britain

(percentage of passenger kilometres by road)

slide39

Passenger transport in Great Britain

(percentage of passenger kilometres by road)

traffic congestion and transport policies40
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • The allocation of road space
    • demand for road space
      • a derived demand
      • determinants of demand
      • the price and income elasticities of demand
    • supply of road space
traffic congestion and transport policies41
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • The allocation of road space
    • demand for road space
      • a derived demand
      • determinants of demand
      • the price and income elasticities of demand
    • supply of road space
      • short run
traffic congestion and transport policies42
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • The allocation of road space
    • demand for road space
      • a derived demand
      • determinants of demand
      • the price and income elasticities of demand
    • supply of road space
      • short run
      • long run
traffic congestion and transport policies43
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Social optimum level of road usage
    • marginal social benefit
    • marginal social cost
      • congestion costs: time
traffic congestion and transport policies48
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Social optimum level of road usage
    • marginal social benefit
    • marginal social cost
      • congestion costs: time
      • congestion costs: monetary
traffic congestion and transport policies49
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Social optimum level of road usage
    • marginal social benefit
    • marginal social cost
      • congestion costs: time
      • congestion costs: monetary
      • environmental costs
traffic congestion and transport policies50
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Social optimum level of road usage
    • marginal social benefit
    • marginal social cost
      • congestion costs: time
      • congestion costs: monetary
      • environmental costs
    • socially efficient level of road usage
actual and optimum road usage
Actual and optimum road usage

Costs and benefits (£)

MSB

O

Cars per minute

actual and optimum road usage52
Actual and optimum road usage

MC (private)

Costs and benefits (£)

a

MSB

O

Cars per minute

actual and optimum road usage53
Actual and optimum road usage

MC (private)

Costs and benefits (£)

e

a

MSB

O

Q1

Cars per minute

actual and optimum road usage54
Actual and optimum road usage

MSC

MC (private)

Costs and benefits (£)

b

e

a

MSB

O

Q1

Cars per minute

actual and optimum road usage55

Optimum

charge

c

Actual and optimum road usage

MSC

MC (private)

Costs and benefits (£)

d

b

e

a

MSB

O

Q2

Q1

Cars per minute

traffic congestion and transport policies56
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Policy 1: direct provision
    • the road solution
    • public transport
  • Policy 2: regulation and legislation
    • restricting car access
      • bus and cycle lanes
      • no entry to side streets
      • pedestrian-only areas
    • parking restrictions
traffic congestion and transport policies57
TRAFFIC CONGESTION AND TRANSPORT POLICIES
  • Policy 3: changing market signals
    • extending existing taxes
    • road pricing
      • variable tolls
      • supplementary licences
      • electronic road pricing
    • subsidising alternative means of transport
applied microeconomics58

Applied Microeconomics

Competition Policy

competition policy
COMPETITION POLICY
  • Competition, monopoly and the public interest
  • The targets of policy
    • abuse of monopoly power
equilibrium of industry under perfect competition and monopoly with the same mc curve

MC

AR = D

MR

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

£

Monopoly

P1

Q1

O

Q

equilibrium of industry under perfect competition and monopoly with the same mc curve61

P2

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

£

MC ( = supply under

perfect competition)

Comparison with

Perfect competition

P1

AR = D

MR

Q1

Q2

O

Q

equilibrium of industry under perfect competition and monopoly with different mc curves
Equilibrium of industry under perfect competition and monopoly:with different MC curves

£

MCmonopoly

P1

AR = D

MR

O

Q1

Q

equilibrium of industry under perfect competition and monopoly with different mc curves63

ACmonopoly

P4

Q4

Equilibrium of industry under perfect competition and monopoly:with different MC curves

MC ( = supply)perfect competition

£

MCmonopoly

P2

P1

x

P3

AR = D

MR

Q2

Q3

O

Q1

Q

competition policy64
COMPETITION POLICY
  • Competition, monopoly and the public interest
  • The targets of policy
    • abuse of monopoly power
    • mergers
competition policy65
COMPETITION POLICY
  • Competition, monopoly and the public interest
  • The targets of policy
    • abuse of monopoly power
    • mergers
    • oligopolistic collusion: restrictive practices
competition policy66
COMPETITION POLICY
  • EU legislation
    • Article 81: restrictive practices
    • Article 82: monopolies and mergers
    • merger control measures
    • assessing EU policy
competition policy67
COMPETITION POLICY
  • UK competition policy
    • the OFT and the Competition Commission
    • restrictive practices policy
      • Chapter 1 prohibition
      • types of anti-competitive behaviour
      • powers of the OFT
    • monopoly policy
      • Chapter 2 prohibition
      • market-share criterion
      • market contestability
      • anti-competitive practices
competition policy68
COMPETITION POLICY
  • UK competition policy (cont.)
    • merger policy
      • role of OFT and Competition Commission
      • criteria for judgement
    • features of the 2002 Enterprise Act
competition policy70
COMPETITION POLICY
  • Assessment of competition policy
    • focus on behaviour rather than market structure
    • prohibition of certain practices
    • tougher powers to identify secret collusion
privatisation
PRIVATISATION
  • Nationalisation and privatisation
    • history of nationalisation
    • forms and history of privatisation
privatisation76
PRIVATISATION
  • Arguments for privatisation
    • market forces
      • greater competition in the goods market
      • greater competition for finance
      • accountability to shareholders
    • reduced government interference
    • reducing the PSNCR
    • increased share ownership
privatisation77
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
profit maximising natural monopoly83
Profit-maximising natural monopoly

£

Pm

LRACm

LRAC

LRMC

D

Qm

Q

MR

profit maximising natural monopoly84

Qn

Profit-maximising natural monopoly

£

Pm

LRACm

LRAC

Pn

LRMC

D

Qm

Q

MR

privatisation85
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
privatisation86
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
    • lack of co-ordination of industries
privatisation87
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
    • lack of co-ordination of industries
    • externalities
privatisation88
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
    • lack of co-ordination of industries
    • externalities
    • fairness and social justice
privatisation89
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
    • lack of co-ordination of industries
    • externalities
    • fairness and social justice
    • problems with the PSNCR
privatisation90
PRIVATISATION
  • Arguments against privatisation
    • natural monopolies
    • capital costs and entry barriers
    • lack of co-ordination of industries
    • externalities
    • fairness and social justice
    • problems with the PSNCR
  • Ownership and the public interest
regulation
REGULATION
  • Identifying short-run optimum price and output
    • industry has monopoly power
      • the first-best situation
      • second-best pricing rules
    • industry produces externalities
    • questions of fairness
  • Identifying long-run optimum price and output
regulation95
REGULATION
  • Regulation in practice: RPI – X formula
  • Advantages of UK regulation
    • discretionary; flexible
    • incentives
  • Disadvantages of UK regulation
    • disincentives of changes to X
    • excessive power of regulator?
    • playing ‘games’ with industry
    • alternatively, regulatory capture
    • complexity of regulation
regulation96
REGULATION
  • Increasing competition in the privatised industries
    • limited extent of true natural monopoly
    • allowing competition where there is no natural monopoly
    • allowing access to grids by competitors
    • forbidding suppliers from being grid owners
    • capping market share of established firms
    • competitive franchising to make monopolies contestable
applied microeconomics97

Applied Microeconomics

Privatisation in Transition Economies

privatisation in transition economies
PRIVATISATION IN TRANSITION ECONOMIES
  • State ownership under communism
    • the system of central planning
    • problems of inconsistency
    • inappropriate success indicators and rewards
    • results
  • Transition to a market economy
    • forms of market liberalisation
    • degree of transition achieved
privatisation in transition economies99
PRIVATISATION IN TRANSITION ECONOMIES
  • Privatisation
    • forms of privatisation
    • insider and outsider privatisation
  • Requirements for successful privatisation
    • supportive environment
    • price liberalisation
    • restructuring of firms
    • corporate governance