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Averch–Johnson Effect
The Averch–Johnson effect is the tendency of Monopoly#Government-granted monopoly, regulated companies to engage in excessive amounts of capital accumulation in order to expand the volume of their profits. If companies' profits to Financial capital, capital ratio is regulated at a certain percentage then there is a strong incentive for companies to over-invest in order to increase profits overall. This investment goes beyond any optimal efficiency point for capital that the company may have calculated as higher profit is almost always desired over and above efficiency. Excessive capital accumulation under rate-of-return regulation is informally known as gold plating. Mathematical derivation Suppose that a regulated firm wishes to maximize its profit:\pi = R(K,L) - wL - rKwhere R(K,L) is the revenue function, K is the firm's capital stock, L is the firm's labor stock, w is the wage rate, and r is the cost of capital. The firm's profit is constrained such that:\sigma = where \sigm ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monopoly
A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a specific person or company, enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a Market (economics), market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic Competition (economics), competition to produce the good (economics), good or Service (economics), service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb ''monopolise'' or ''monopolize'' refers to the ''process'' by which a company gains the ability to raise ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Shadow Price
A shadow price is the monetary value assigned to an abstract or intangible commodity which is not traded in the marketplace. This often takes the form of an externality. Shadow prices are also known as the recalculation of known market prices in order to account for the presence of distortionary market instruments (e.g. quotas, tariffs, taxes or subsidies). Shadow Prices are the real economic prices given to goods and services after they have been appropriately adjusted by removing distortionary market instruments and incorporating the societal impact of the respective good or service. A shadow price is often calculated based on a group of assumptions and estimates because it lacks reliable data, so it is subjective and somewhat inaccurate. The need for shadow prices arises as a result of “externalities” and the presence of distortionary market instruments. An externality is defined as a cost or benefit incurred by a third party as a result of production or consumption of a g ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics Of Regulation
Regulatory economics is the economics of regulation. It is the application of law by government or regulatory agencies for various purposes, including remedying market failure, protecting the environment and economic management. Regulation Regulation is generally defined as legislation imposed by a government on individuals and private sector firms in order to regulate and modify economic behaviors. Conflict can occur between public services and commercial procedures (e.g. maximizing profit), the interests of the people using these services (see market failure), and also the interests of those not directly involved in transactions (externalities). Most governments, therefore, have some form of control or regulation to manage these possible conflicts. The ideal goal of economic regulation is to ensure the delivery of a safe and appropriate service, while not discouraging the effective functioning and development of businesses. For example, in most countries, regulation control ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Rate-of-return Regulation
Rate-of-return regulation is a system for setting the prices charged by government-regulated monopolies, such as public utilities. Its main premise is that monopolies must charge the same price that would ideally prevail in a perfectly competitive market, equal to the efficient costs of production, plus a market-determined rate of return on capital. Rate-of-return regulation has been criticized because it encourages cost-padding and because if the rate is set too high, it encourages regulated firms to adopt capital-labor ratios that are too high. That is known as the Averch–Johnson effect, or simply "gold-plating." Under rate-of-return regulation, regulated monopolies have no incentive to minimize their capital purchases, since prices are set equal to their costs of production. Rate-of-return regulation was dominant in the US for a number of years in the government regulation of utility companies and other natural monopolies. Such companies, if not regulated, could easily charge f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Public Utilities Commission
In the United States, it is a governing body of a utility. In Canada, it is a utility, not a regulatory body. Canada In Canada, a public utilities commission (PUC) is a public utility owned and operated by a municipal or local government under the oversight of one or more elected commissioners. It is not a regulatory body. Its role is analogous to a municipal utility district or public utility district in the US. * Brantford Public Utilities Commission * Kitchener Public Utilities Commission Regulatory bodies The utility that is being regulated may be owned by the consumers that it serves, a mutual utility like a public utility district, a state-owned utility, or it may be a stockholder owned utility either publicly traded on a stock exchange or closely held among just a few investors. These utilities often operate as legal monopolies, which means that they do not compete in a marketplace but are instead regulated by commissions to ensure fair pricing. Countries ;Americas * ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Law And Economics
Law and economics, or economic analysis of law, is the application of microeconomic theory to the analysis of law, which emerged primarily from scholars of the Chicago school of economics. Economic concepts are used to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be promulgated. There are two major branches of law and economics; one based on the application of the methods and theories of neoclassical economics to the positive and normative analysis of the law, and a second branch which focuses on an institutional analysis of law and legal institutions, with a broader focus on economic, political, and social outcomes, and overlapping with analyses of the institutions of politics and governance. History Origin The historical antecedents of law and economics can be traced back to the classical economists, who are credited with the foundations of modern economic thought. As early as the 18th century, Adam ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Product Of Labor
In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. It is a feature of the production function, and depends on the amounts of physical capital and labor already in use. Definition The marginal product of a factor of production is generally defined as the change in output resulting from a unit or infinitesimal change in the quantity of that factor used, holding all other input usages in the production process constant. The marginal product of labor is then the change in output (''Y'') per unit change in labor (''L''). In discrete terms the marginal product of labor is: : \frac . In continuous terms, the ''MPL'' is the first derivative of the production function: : \frac .Perloff, J., ''Microeconomics Theory and Applications with Calculus'', Pearson 2008. p. 173. Graphically, the ''MPL'' is the slope of the production function. Examples There is a factory which produces toys. When there are no workers ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Product Of Capital
In economics, the marginal product of capital (MPK) is the additional production that a firm experiences when it adds an extra unit of capital. It is a feature of the production function, alongside the labour input. Definition The marginal product of capital (MPK) is the additional output resulting, ceteris paribus ("all things being equal"), from the use of an additional unit of physical capital, such as machines or buildings used by businesses. The marginal product of capital (MPK) is the amount of extra output the firm gets from an extra unit of capital, holding the amount of labor constant: : MP_K = F(K + 1, L) - F(K, L) Thus, the marginal product of capital is the difference between the amount of output produced with K + 1 units of capital and that produced with only K units of capital.N. Gregory Mankiw. (2010). Macroeconomics. United States: Worth Publishers Determining marginal product of capital is essential when a firm is debating on whether or not to invest on the ad ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Lagrange Multiplier
In mathematical optimization, the method of Lagrange multipliers is a strategy for finding the local maxima and minima of a function subject to equality constraints (i.e., subject to the condition that one or more equations have to be satisfied exactly by the chosen values of the variables). It is named after the mathematician Joseph-Louis Lagrange. The basic idea is to convert a constrained problem into a form such that the derivative test of an unconstrained problem can still be applied. The relationship between the gradient of the function and gradients of the constraints rather naturally leads to a reformulation of the original problem, known as the Lagrangian function. The method can be summarized as follows: in order to find the maximum or minimum of a function f(x) subjected to the equality constraint g(x) = 0, form the Lagrangian function :\mathcal(x, \lambda) = f(x) + \lambda g(x) and find the stationary points of \mathcal considered as a function of x and the Lagrange mu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Accumulation
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form of profit, rent, interest, royalties or capital gains. The aim of capital accumulation is to create new fixed and working capitals, broaden and modernize the existing ones, grow the material basis of social-cultural activities, as well as constituting the necessary resource for reserve and insurance. The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system.''Capital'', Encyclopedia on Marxists.org: http://marxists.org/glossary/terms/c/a.htm#capital Definition The definition of capital accumulation is subject to controversy and ambiguities, because it could refer to: *a ''net addition'' to existing wealth *a ''redistribution'' of wealth. Most often, capi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Functional (mathematics)
In mathematics, a functional (as a noun) is a certain type of function. The exact definition of the term varies depending on the subfield (and sometimes even the author). * In linear algebra, it is synonymous with linear forms, which are linear mapping from a vector space V into its Field (mathematics), field of scalars (that is, an element of the dual space V^*) "Let ''E'' be a free module over a commutative ring ''A''. We view ''A'' as a free module of rank 1 over itself. By the dual module ''E''∨ of ''E'' we shall mean the module Hom(''E'', ''A''). Its elements will be called functionals. Thus a functional on ''E'' is an ''A''-linear map ''f'' : ''E'' → ''A''." * In functional analysis and related fields, it refers more generally to a mapping from a space X into the field of Real numbers, real or complex numbers. "A numerical function ''f''(''x'') defined on a normed linear space ''R'' will be called a ''functional''. A functional ''f''(''x'') is said to be ''linear'' ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cost Of Capital
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. Basic concept For an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital. Given a number of competing investment opportunities, investors are expected to put their capital to work in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be expected to earn in the best alternative investment of equivalent risk; this is the opportunity cost of capital. If a project is of similar risk to a company's average business activities it is reasonable to use the company's average cost ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
