************ Steve Szeghi **************

Lassen Peak after climbing                   Jacksonville Beach

RESEARCH INTERESTS

most recent publication:  "Lessons In Sustainable Development and Service on the Dine(Navajo)Nation";  read it at: http://www.case.edu/orgs/oaeps/board.htm
click on current issue volumes 17 & 18

Economics as though the Earth, People, and All Living Things were Persons of Value 

The Necessity of Public Ownership of Public Goods such as Clean Air, National Parks, and Wilderness

The Decline of Social Justice in the American and Global Economy

The Magic of the Earth and Ecological Economics

The Economics of Simplicity: Jesus, Buddha and the life of Francis of Assisi

Determinants of Environmental Voting Patterns in the House and Senate

Land Wars in the American West 

STEVE SZEGHI and DAUGHTERS

a canyon with a waterfall, but the river was dry

Steve Szeghi with Cesar Chavez

LINKS for News and Activism

www.aimovement.org  American Indian Movement

www.sierraclub.org      environmental activism

www.democracynow.org  alternative news source

www.suwa.org     environmental activism

www.aflcio.org  American Federation of Labor (unions)

www.ufw.org   United Farm Workers Union

www.defenders.org  wildlife defenders, wolves, grizzlies

www.motherjones.com  alternative news source

www.villagevoice.com  alternative news source

www.npca.org   activism for preserving national parks

www.ufcw.org   United Food and Commerical Workers Union

www.vegetariantimes.com   news for vegetarians

www.moveon.org     political news

HELP HELP

Perfect Competition

Assumptions

1, Large # of both Buyers and Sellers( PRICE TAKER BEHAVIOR)

2, Free Entry and Exit ( no legal barriers such as permits, licenses, zoning restriction, et al

    plus existing firms do not have a cost advantage over newcomers)

3, homogeneous products (products identical in substance and in the mind of consumers)

4, instantaneous price adjustment

5, perfect information(firms know their cost structure and everyone

    knows the market price)

results

1 in absence of externalities

since p = mc allocational efficiency (short run and long run)

2  p = LAC     zero profit (long run)

3, q = min Lac   engineering efficiency (long run)

4, x efficiency     (long run and possibly short run)

Profit max rule

Set p (which is equal to mr for perfect competitor) equal to marginal cost, where mc is rising

(the slope of mc must be greater than the slope of mr to fulfill the second order condition for

profit maximization

PURE MONOPOLY

assumptions

1, a single seller of a good for which no close substitute exists

2, Entry barriers are prohibitive, no one new can get in

3, Homogeneous or heterogeneous the monopolist is the only one to produce it

    and there is no close substitute

4, instantaneous price adjustment

5, perfect information( the monopolist knows its demand curve and its own

    cost structure, consumers know the price the monopolist is charging

results

1, p > mc therefore allocational inefficiency

2, p > or equal to LAC, no guarantee of zero profit

3, q not necessarily equal to min Lac, no guarantee of engineering efficiency

4, x inefficiency highly likely

profit max rule

price is greater than mr, price will therefore be greater than mc

set mr equal to mc, where the slope of mc is greater than the slope of mr

Oligopoly   ( try to think of examples, for both heterogeneous and homogeneous oligopoly)

Assumptions

1, There are a few firms selling a good, many buyers( the sellers are so few in number that firms in the industry have some market power-the ability to make the price)

2, The product could be homogeneous or heterogeneous

3, Entry barriers whether based upon legalities or costs are significant but not prohibitive

4, instantaneous price adjustment

5, perfect information (firms know their cost structure and the market demand curve,

   consumers know the price that firms are charging, firms do not “know” 

   their own demand curve since the quantity of their sales depend upon

   the reaction of their rivals to the price the firm is charging)

Results

1, p > mc        but the percentage markup in price above marginal cost will be equal to the reciprocal of the

                       price elasticity of demand    p-mc/p   =  1/ p E d

hence allocational inefficiency, but not probably as great as in monopoly(short and long run)

2, p > or = to ac   in the long run, so there is no guarantee of zero profits, but any positive profits likely

            likely to be less substantial than in monopoly since some new entry can occur

3, q not necessarily at minimum of LAC, hence engineering inefficiency, but not likely as substantial as in monopoly (long run )

4, possibility of x inefficiency significant but not as substantial as in monopoly

profit max rule

set perceived marginal revenue equal to marginal cost where slope of mc is greater than the slope of mr

key models of oligopoly

prisoners dilemna       cournot model                kinked demand curve model        price leader

Monopolistic Competition (think of examples besides lawyers, colleges, and arts and crafts)

assumptions

1, large number of buyers and sellers

2, free exit and entry

3, HETEROGENEOUS PRODUCT

4, instantaneous price adjustment

5, perfect information (same as oligopoly)

results

1, p > mc  therefore allocational inefficiency, but given that  p-mc/p equals 1/ p E d , and that number one determinant of elasticity is number and availability of close substitutes, and given that there are a large number of the same but slightly differentiated products, the allocational inefficiency should be extremely slight    (  short and long run )

2, p = LAC  in the long run and hence zero profits

3, q < q at min LAC and hence engineering inefficiency and excess capacity in the long run

4, likely x efficiency

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profit max rule

same as oligopoly:  set perceived mr = mc

conclusions:   the model of monopolistic competition was originally intended as a substitute for perfect competition. The authors Chamberlain and Robinson were critics of capitalism.  They felt heterogeneity was a more realistic assumption than homogeneity.  As a result of changing one assumption from the model of perfect competition, heterogeous rather than homogeneous products, allocational efficiency and engineering efficiency are lost.  Other economists pointed out that the size of the deviations should not be terribly significant, the deviations could be interpreted as the price we pay for differences.  Others would point out however that most of the differnces are the consequence of advertising which might be a waste of social resources.

Theory of POTENTIAL COMPETITOR and CONTESTABILITY, theory of limit pricing are all arguments which if correct, ameliorate the amount of allocational inefficiency due to various types of imperfect competition, since the imperfect competitor would price not just with existing competitors in mind but also potential competitors.

General Conclusion for whole course:

The market works well when there is lots of competition, provided externalities either do not exist or have been corrected for with the appropriate tax or subsidy, and we are dealing with a private good as opposed to a public good.

Oligopoly does not result in as large and as significant departures from competitive as does monopoly unless the oligopolists collude perfectly with one another.

In the case of Monopolistic Competition the departure from the competitive results is less than in Oligopoly.

Goverment should not create monopolies, it should not create legal barriers to entry, it should not build or manage cartels or rings. It should prosecute price fixing, if the goal of government is efficiency.

Monopolies and Cartels result in substantial departures from the efficiencies found in Perfect Competition.  Evem according to Adam Smith, government should protect against monopoly.

Market Failure

Market failure occurs as a result of a lack of perfect competition, as a result of externalities, and also in the provision of public goods.  Government can correct these with antitrust law enforcement, challenging mergers and prosecuting collusion, as well as creating state owned enterprises to compete in a given industry when the number of competitors falls below a certain threshold level ( in order to deal with a lack of competition), regulation of prices, production methods, and ownership structures (to deal with imperfect competition or to deal with an externality), appropriate taxes (for a negative externality) or subsides (positive externality) and by providing for the provision of public goods.

Markets fail to deliver an adequate amount of public goods.  (A public good is a good which is first non-rival in consumption and second, difficult if not impossible to exclude non-payers from the benefits.) Examples of public goods include wilderness, clean air, bio-diversity, social justice, world peace, and national defense. Government can correct for this failure of the market to provide a sufficient quantity of public goods either by owning or providing the public good in question or taking other steps to insure its provision.

Markets can not be depended upon to create a just income distribution. Government can correct for this failure through income as well as wealth and power redistribution. Income redistribution is the practice of taxing some people in order to pay benefits to others.  Examples include food stamps, subsidized student loans, social security, farm subsidies, and home heating assistance.  Income redistribution can be done without any shrinkage of the economic pie or any loss of incentive when only Economic rent is taxed. Economic rent is any payment to a factor of production such as labor, entrepreneurship, or capital above the amount necessary to fall forth the services of that factor.  If non-rental income is taxed then redistribution would involve a trade-off between efficiency and equity, which society may still deem worthwhile. In addition to redistribution reater equality and social justice as well as efficiency can be realized through collective bargaining and enhancing the rights of the same.  Unions and civic organizations as well as government can be a countervailing power to Big Business and large corporate interests.

Government can correct for market failure, but just because government can correct for market failure does not mean that government does or will correct for market failure. When government fails to correct for market failure that is called political failure, which in a democracy is the ultimate responsibility of the people.  Frequently, politicians are rewarded by special interests who benefit from various forms of market failure to the detriment of society.  Holding politicians responsible for political failure is the responsiblity of the citizenry and the political process.  Unfortunately those same special interests who benefit from market failure own much of the major media and have a great deal of sway over the election cycle and political campaigns.