Public Utilities & Subsudies

Notes by Monica

1. Public Utilities
• Is an example of how the government plays an indirect role when it helps the market economy operate smoothly and efficiently.
• It means municipal or invest or owned companies that offer products. For example: water, sewerage, electric services.
• They have little competition and want government supervision. Do to the little competition they have little incentive to offer reasonable prices.
• Government gives money to social security checks, veterans, benefits, financial aid to college students, rent subsides, unemployment companies. They give these recipients the power to “vote” by making their demand known in the market. It influences the production of goods and services.

2. Subsidy
• Is government payment to an individual, business, or other group to encourage or protect economic activity.
• They lower the cost of production and encourage producers to remain in the market and new producers to enter.
• When subsidies are repealed cost goes up, this causes producer to lave the market and supply curve shifts to the left.
• These subsidies help farmers in the milk, cotton, wheat, and soybean industries support their income. It attracted many farmers into the farming industry.

3. Market Failure
• Is a condition that causes a competitive market to fail.
• Five main types of market failure:
- Inadequate Competition: it happens when merges and acquisitions become big and with fewer firms dominating the market, so the decrease in competition reduces the efficient use of scarce resources. If a firm does not face adequate competition they could expend the money on big salaries or bonuses and other benefits. Inadequate competition may enable business to influence politicians in order to get special treatment that then enriches it managers and owners.
- Inadequate Information: if a resource is not use correctly everyone most have adequate information about market conditions. The information is posted on internet or newspapers,.
- Resources Immobility: Land, capital, labor, and entrepreneurs do not move to markets where returns are highest, they stay put and may be unemployed.
- Public Goods: are goods or services whose benefits are available to everyone and are paid for collectively. Examples: uncrowned highways, national defense, flood control measures, and police and fire protection.
- Externalities: economic side effect that neither harms nor benefits an uninvolved third party that is not involved in the activity that causes it. There is negative externality that means harmful side effect that affects an uninvolved third party because of the actions of others. Finally the positive externality is the beneficial side effect that affects an uninvolved third party.