EconomicsNotes

  Privatisation is the transfer of government owned assets to the private sector so that an institution or company which is a cost to taxpayers becomes a dynamically efficient taxpayer itself, adding to, rather than subtracting from, the national budget. It can take a variety of forms, such as sell-offs, break-ups, popular share ownership, the introduction of private finance initiatives, and internal markets, as well as franchising. Healthcare is a merit good which in some respects has elements of natural monopoly, or at least economies of scale. So, for instance, if left to itself, the market will provide the same or better drugs and procedures, and forms of prevention, rehabilitation and care, which the NHS provides. It will provide them at a very high average cost, however. This higher price would be met by co-pay, insurance, or direct spending arrangements on the part of those who now get the service for a relatively small amount of tax, for as long as they need it. In ...

  Indirect taxes are taxes which are levied on producers by the government, part or all of which the producer can choose to pass on to the consumer. If the consumer is price sensitive , the producer will absorb the part of the tax which enters the producer’s previous producer surplus and pass on the part that is within the pre-tax consumer surplus. In situations where the consumer’s demand is completely elastic, the producer will absorb the full cost.      The qualities of demerit goods make them attractive for the imposition of indirect taxes. A demerit good is something that is acknowledged to be, on balance, bad for society and for individuals. The demerit good imposes costs upon third parties, society in general, and possibly users with imperfect information. These negative externalities mean that the private market price and the optimum social price, once social marginal cost is considered are different.   Overall, the market will oversupply and under-...

    A firm is an economic entity engaged in business. Economic theory assumes that the firm, like the consumer, maximises its self-interest. This self interest is however the product of the interplay of market structure, business organisation, and chosen or required objective. So, for instance, some firms might choose to profit-maximise, some to profit satisfy, some to revenue maximise, and some to sales-maximise, or even engage in loss-leading predatory behaviours. Oligopoly firms might take their cue from other firms, and find that price-maximisation is only really possible if they can join a cartel; imperfectly competitive firms might sustain a loss in the short run, covering their variable costs and making a contribution to fixed ones, if they think that this will lead to ultimate survival in a temporarily tough market. These decisions often relate to the nature of the firms. A sole trader’s objective, for instance, may include the freedom and control that working for on...

  Nationalisation means the process whereby a business is taken into government ownership and is run by a public authority. Between 1945 and 1985, many British companies were nationalised ones. Governments, starting consistently in the 1980s, sold these companies to the private sector with the aim of changing companies which required public funding into ones that generated tax revenue. In addition, attempts were made to create or emulate markets in the areas where the firms operated, often by breaking the firms up into a number of new ones, so as to introduce choice for customers, competition, and dynamic efficiency. A trade-off was accepted in which formerly public companies made private profits, often accompanied by subsidy, for shareholders, but where shareholders invested in infrastructure and capital. This was accompanied by government regulation of price and services. It was the case, however, that many industries were originally natural monopolies. This is a situation in w...

  Departure from the European Union obviously carries with it micro- and macro-economic effects. Only one country has so far left the union (the UK) but others may choose to do so in the future. As a general rule, prediction is not predictive; circumstances and contexts apply. The terms on which a state might leave matter. Nevertheless, there are things which all governments and voters contemplating such a move might bear in mind. The EU is a customs union and contains a single market. A customs union, by definition, creates one tariff on imports around the zone, and a single market ensures smooth trade, a common baseline of standards and regulations, and the free movement of capital, products, goods and services, people, and investment. Any state which left such an arrangement would, even with a comprehensive trade deal, become a third party. It could no longer influence the tariff decisions of the bloc after a transition period, and would without a deal have to pay the import...

  Energy prices are a basic cost. They are semi-variable for most businesses, in that a basic fixed cost of energy is generated by the need to heat or to cool buildings, and to carry out operations. In addition, a marginal cost exists for producers in terms of the energy required to increase production. Finally, energy costs are also built into the transport of raw materials, and the distribution of finished goods and services, which again contribute to marginal costs. If global energy prices are rising wholesale, it is unlikely that businesses or individuals will be able to lower the retail cost of energy by switching between suppliers. Energy storage is expensive and encourages economies of scale and oligopolies, in which consumer choice is limited at times of higher wholesale prices. When energy prices are low, smaller companies can purchase wholesale and make money at the margin undercutting bigger companies as storage costs will be a burden for the latter and the small compa...