By Nicola Acocella
Within the age of globalization, either household and overseas fiscal regulations play a major position in choosing businesses' recommendations. even as, companies' offerings have a better effect on financial policymaking in an international economic climate, because the diversity of possible choices open to them expands. Nicola Acocella analyzes either side of this courting and locations targeted emphasis on present matters. wide in scope, this ebook is aimed toward scholars who've accomplished an introductory direction in either micro- and macro-economics.
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Extra resources for Economic Policy in the Age of Globalisation
Sample text
Decreasing costs therefore lead to market failure, making it impossible to satisfy Pareto optimality. Another problem emerges if scale economies are not so great as to lead to monopoly but give rise to oligopoly instead. g. mining, steel, rubber, chemical, transportation, domestic appliances, telephone services. In this case, rather than responding automatically to the price set by the market, as in perfect competition, each firm is involved in a game in which it sets its price or level of output by taking account of the reaction of its competitors, thus engaging in ‘strategic’ behaviour,15 with the consequence that not all possible equilibria will be Pareto efficient.
Take the example of a polluting factory. The polluter does not have to bear the social cost of the pollution and, therefore, in equalising his (private) marginal cost and price he will produce a higher level of output than he would if the social cost of pollution were also included in his calculations. The opposite would occur in the case of external economies. 28 Government intervention can remove the divergence between social and private cost (or product) by internalising the cost or benefit to society caused by the activity of a firm or individual.
But how is the firm to divide the total extra payment among its customers? Assume that the number of consumers is not known before the firm is established. If there were only one consumer, that person would have to bear the entire fixed cost; if there were two, they would each bear half the cost; n consumers would pay 1/n of the total surcharge. 13 Having already covered fixed costs with the surcharge imposed on the first n ∗ consumers, subsequent consumers will not have to bear the extra burden. 11 12 13 If there were two or more firms, they would have an incentive to merge; or each could seek to increase output in order to reduce costs.