Benefits of Vaccination Programs for Children
Monopolistic competition is a market with imperfect competition. This market is characterized by a large number of buyers and sellers. Another important feature of this market is product differentiation. The differentiation in products occurs in the form of brands, packaging, shape, color, sizes, features etc. Thus, the products are not perfect but close substitutes of each of other. In monopolistic competition, the firms are price takers, and cannot control the market price. Therefore, the firms behave independently (Nikaido 2015). The wine industry of Australia is classified as monopolistic competition. This industry consists of approximately 2000 producers but a few major producers dominate the market. The number of buyers is large and there are international consumers also. The wines are not perfect but close substitutes of each other, as they vary in terms of variety, quality, color, flavor, and packaging. This leads to a high level of non-price competition among the producers. Since, it is a large industry, and there are not much barriers to entry, a new firm has the freedom to enter and exit from the wine market (Varsei and Polyakovskiy 2017).
This market is different from perfect competition. Perfect competition is characterized by homogenous and perfectly substitutable products, and numerous buyers and sellers. The sellers are price takers and a single firm has no power on the market. Therefore, the sellers act independently and one firm’s actions do not affect the market (Harrison 2016).
- The market for banking services in Australia is classified as oligopoly market. There are four most important banks that dominate the banking industry. The four banks hold 66.6% of the market, while others all together hold 33.3% (Joshi et al. 2013). These primary banks have created high barriers to entry for a new bank, which resulted in lack of competition in the industry. These four banks behave as a group and they are interdependent. The decisions of one bank affect the actions of the others. For example, if Westpac decides to cut its rate of interest, then to retain the customers, ANZ, Commonwealth Bank and NAB would cut their rates too.
- There are high barriers to entry in the banking industry. Those are as follows. The banking industry is dominated by these primary banks for the last few decades. Therefore, people have more trust and confidence on these banks, than on new banks. The establishment cost would be quite higher for the new banks compared to the dominating banks. The high amount of cost creates a barrier for the new entrants to compete with the old players in the market. Based on the cost-to-income ratio, the new banks experience bad debt (Burks et al.2016). The other financial barriers include the lack of capital for new technology, salaries and incentives for staffs, cost of premises, compliance etc. It is a challenge for a new bank to build trust and raise funding and the profit margin initially would be quite low for them. The cost of restructuring and resizing is also higher for the new entrants than for the older ones (Clerides, Delis and Kokas 2015).
The practice of price discrimination has always prevailed in the airlines industry. Every flight carries passengers, who have paid different ticket prices, as well as service charges. The airlines create segments of the market and charge different prices for tickets and services. The biggest example of price discrimination is the division of Economy and Business class of a flight and the services offered in each class. Other example can be sited as the priority services offered to frequent fliers. Business class has to pay prices multiple times higher than that for the economy class (Escobari, Rupp and Meskey 2016). At the same time, there are segments in the economy class also. The airlines charge lower prices with several restrictions, such as inconvenient time, no baggage etc. The customers maximize the expected utility from the flights and must choose between the combinations like high cost-no restrictions and low cost-high restrictions. The price discrimination is based on time of travelling, additional services on the flight, time of ticket purchase, peak or non-peak season, changes in schedule or seats, baggage cost etc. Airlines practice all three types of price discrimination (Chandra and Lederman 2015).
Monopolistic Competition in Wine Industry of Australia
Price discrimination is beneficial for the people sometimes. It is helpful to the lower income group than the higher income group in some cases, such as, poop people can buy goods in bulk at a lower price. On the other hand, it deprives the higher income group from consumer surplus, as they pay more for same quality or amount of goods. This can also result in misuse of the scarce resources of a nation, from the production of desirable goods to undesirable goods (O’Brien 2014).
(i) Vaccination of children creates positive externality for the society. The purpose of vaccination is to give the children a better future and a healthy life with less disease. They would be able to get education without much health issues and finally could get a good job and earn money. Thus, the vaccination programs are the government’s social investment (Manski 2016).
Free markets often fail to give correct valuation of positive externalities. Hence, there are chances of the service being under provided. In the private market, the vaccination programs for the society incur a heavy cost. Hence, they might put a high price for the vaccination, as well as under provide the service for profit maximization. This leads to reduction of social welfare (Sharma et al. 2016).
(ii).
Figure 1: Externality from vaccination
(Source: Author)
Figure 1 depicts that, at Q*, MPB (marginal private benefit) = MPC (marginal private cost). But, due to positive externalities, MSB (marginal social benefit) > MSC (marginal social cost) and leads to inefficiency. Efficiency occurs at Q1, where MSB = MPC = MSC. Hence, without government intervention, the private market will under provide the service.
(iii) .To uptake the number of vaccinations, there are some ways other than ‘no jab, no pay’. Incentive schemes by the government, such as money and medical benefits for the family after vaccination availed; awareness programs about the necessity of vaccination; children’s welfare programs, such as free primary education, associated with vaccination for the underprivileged families can lead to increase the uptake of vaccination (Manski 2016).
Greenhouse gas emissions create negative externality and market failure. This has negative effects on the society as well as on environment. Three reasonable policy alternatives for solving this market failure can be explained in the following ways. Firstly, corrective taxation can be imposed by the government and the cost of the activities emitting greenhouse gases can be increased. Secondly, the industries should be pushed to apply low-carbon technologies. Finally, regulations should be implemented to increase the awareness of the negative impacts of the gases and reduce the emissions (Molinos-Senante et al. 2013).
Price Discrimination in Airlines Industry
(i) The current rate of unemployment in Australia = 5.87% (March 2017)
(Source: Australian Bureau of Statistics, 2017)
GDP growth of Australia (Quarterly) = 1.1% (Since December 2016)
(Source: Australian Bureau of Statistics, 2017)
Australia’s rate of inflation (CPI) = 2.1% (Quarterly March 2017)
(Source: Australian Bureau of Statistics, 2017)
(ii) A business cycle has four stages (Krolzig 2013):
- Expansion: the growth of the economy is 2-3% and the stocks are in the bull market
- Peak: economy grows over 3%, inflation raises prices, asset bubbles arise and stock market displays ‘irrational exuberance’.
- Contraction: growth of economy slows down but not negative and stocks are in bear market.
- Trough: recession prevails in economy.
As per the data of the Australian Bureau of Statistics, Australia’s growth of GDP is 1.1% (March 2017), which is less than 3%, rate of inflation is moderate 2.1% (CPI) in third quarter of 2017 and rate of unemployment is stable, 5.87%. This indicates that the economy of Australia lies in expansion cycle (Australian Bureau of Statistics, 2017).
Circular flow of income explains the way that the money circulates in the economy among various sectors, such as, households, firms, businesses, government and financial institutions. It describes the process of the changes in national income, expenses and investments (Murray, Skene and Haynes 2015). The circular flow is represented as the following:
Y = E = O = G + C + I + X – M
Where, Y = total income
E = total expenditure
O = total output
G = expenditure of the government
C = household consumption
I = investment
X = total exports
M = total imports
As per the question:
- Neither injection, nor withdrawal, as it is a redistribution of the factor payments.
- Net injection in terms of investment
- Net withdrawal for the government.
- Increase in net withdrawals as investment in credit unions refers to savings.
- Fall in the net withdrawals as higher dividends represents fall in outflow from households to abroad.
- Fall in net withdrawals referring to cut down savings for financing a holiday (Murray, Skene and Haynes 2015).
Gross Domestic Product (GDP)
Gross National Expenditure (GNE)
(i) The limitations of GDP in measuring welfare:
- No element for measuring wellbeing: in the calculation of GDP, only the monetary value of the production in the country in one financial year is included and no element for welfare is there (Fleurbaey and Blanchet 2013).
- GDP does not calculate any voluntary or unpaid work, or any black market transaction. Thus, standard of living is not measured.
- GDP does not include wealth distribution. Hence, a high GDP can be accompanied by high level of income inequality in the country.
- The types of goods produced are not considered in GDP.
- The externalities, positive or negative, that arise with production, are not ignored in GDP calculation (Zambrano 2014).
(ii) Human Development Index (HDI) is the metric to assess the economic and social welfare and developments of the countries. The elements of HDI are: life expectancy, education level and standard of living of the citizens of a nation. Life expectancy measures the health aspects of the people. Education is evaluated by expected and mean years of adult and children’s schooling. Gross National Income or GNI per capita asses the standard of living of the country (Hdr.undp.org 2017). A country would have a higher HDI score if it has a higher lifespan, greater education level and high level of GDP or GNI per capita.
At present, Australia ranks second in the HDI ranking of the nations, preceded by only Norway. Its score is 0.939. It indicates that the nation has a very high level of education level, standard of living and long and healthy life of the citizens (Hdr.undp.org 2017).
References:
Australian Bureau of Statistics, 2017. Australian Bureau of Statistics. [online] Abs.gov.au. Available at: https://www.abs.gov.au/.
Burks, J.J., Cuny, C., Gerakos, J.J. and Granja, J., 2016. Competition and voluntary disclosure: Evidence from deregulation in the banking industry.
Chandra, A. and Lederman, M., 2015. Revisiting the relationship between competition and price discrimination in the airline industry.
Clerides, S., Delis, M.D. and Kokas, S., 2015. A new data set on competition in national banking markets. Financial Markets, Institutions & Instruments, 24(2-3), pp.267-311.
Escobari, D., Rupp, N.G. and Meskey, J., 2016. Dynamic price discrimination in airlines.
Fleurbaey, M. and Blanchet, D., 2013. Beyond GDP: Measuring welfare and assessing sustainability. Oxford University Press.
Harrison, J., 2016. Law and Economics in a Nutshell. West Academic.
Hdr.undp.org, 2017. Human Development Index (HDI). [online] Hdr.undp.org. Available at: https://hdr.undp.org/en/content/human-development-index-hdi.
Joshi, M., Cahill, D., Sidhu, J. and Kansal, M., 2013. Intellectual capital and financial performance: an evaluation of the Australian financial sector. Journal of Intellectual Capital, 14(2), pp.264-285.
Krolzig, H.M., 2013. Markov-switching vector autoregressions: Modelling, statistical inference, and application to business cycle analysis (Vol. 454). Springer Science & Business Media.
Manski, C.F., 2016. Mandating vaccination with unknown indirect effects. Journal of Public Economic Theory.
Molinos-Senante, M., Hernández-Sancho, F., Sala-Garrido, R. and Cirelli, G., 2013. Economic feasibility study for intensive and extensive wastewater treatment considering greenhouse gases emissions. Journal of environmental management, 123, pp.98-104.
Murray, A., Skene, K. and Haynes, K., 2015. The circular economy: An interdisciplinary exploration of the concept and application in a global context. Journal of Business Ethics, pp.1-12.
Nikaido, H., 2015. Monopolistic Competition and Effective Demand.(PSME-6). Princeton University Press.
O’Brien, D.P., 2014. The welfare effects of third?degree price discrimination in intermediate good markets: the case of bargaining. The RAND Journal of Economics, 45(1), pp.92-115.
Sharma, A., Kaplan, W.A., Chokshi, M. and Zodpey, S.P., 2016. Role of the private sector in vaccination service delivery in India: evidence from private-sector vaccine sales data, 2009–12. Health policy and planning, 31(7), pp.884-896.
Varsei, M. and Polyakovskiy, S., 2017. Sustainable supply chain network design: A case of the wine industry in Australia. Omega, 66, pp.236-247.
Zambrano, E., 2014. An axiomatization of the human development index. Social Choice and Welfare, 42(4), pp.853-872.
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