“Natural” Monopoly Definition: Situation where it makes sense for only one business to provide a good or service, usually because the cost of starting up the business is very high. Prices are regulated by the government. Examples: UTILITIES: electricity companies, water, sewers/waste management

If Competition Were Allowed? There would be too many power lines, sewer systems, water lines all over the place. Difficult or impossible for a consumer to switch to another company Broomfield Water Treatment Facility

Why Don’t They Raise The Price? How It Works: Cannot raise their prices without approval by the Colorado state Public Utilities Commission (PUC)—a part of the state government PUC allows them to make a certain percent in profit.

Problems With Monopolies No competition, so no incentive to: Innovate (come up with new products) Provide good service Change what they’re doing

Colorado Amendment 37 Passed in 2004: 52% to 48% Requires mid- size to large Colorado power companies to produce 10% of their electricity from renewable resources such as wind, solar, hydroelectric by 2015

Public Goods Goods and services that are provided by the government for various reasons: It would be non-profitable It would not be safe The market wouldn’t provide the good equitably (fairly) Textbook definition: Non-excludability (you can’t keep non-payers from using it) The cost of adding new users doesn’t change the cost of production

4. Non-profitability Examples: Army Large hydroelectric dam Roads National Parks Some types of R & D (research and development) Why the Market Doesn’t Provide It Dangerous! (and non-profitable) Too expensive Inefficient use of land (competing roads), expensive (and fairness) Non-profitable Non-profitable (fracking technology was developed by federal government research)

Possible Solutions Have government provide these goods and services  Problems?  Government doesn’t have incentive to save money: they are using tax dollars  Lack of competition leads to inefficiency, poor quality  Allow governments to build it, let private companies run/maintain it.  Problem: private business gets the profit without paying the cost

5. Equity / Fairness What goods and services should everyone have equally? What should everyone have at least minimum access to? What goods/services would improve our country (maximize the societal benefit) if everyone had access to them (and thus provided with tax dollars)?

Fairness Should electricity be a public good? Internet access? Public roads? Public parks and playgrounds? Post office? Health care? Public education? What if all people had / didn’t have these services?

Post Office Closings

How Does Public Education Help Society? Educated population necessary for democracy Educated workforce more productive than non-educated Education leads to higher pay: people spend more money to keep economy going What would be the cost to society of a large uneducated lower class?

What If Public Goods Were Left to Market Forces? Public goods and services that are currently available to everyone equally would become something you have to pay for Not all people could pay Services would not be available where not profitable (especially rural communities, poor neighborhoods)

Private Schools

Holy Family Tuition for the school year is $8,300 for Catholics who are recognized and registered members of a Catholic parish; $9,600 for non-Catholics and for Catholics who are not registered members of a Catholic parish. Holy Family awarded over $800,000 in tuition assistance and scholarships for the school year.

Public Goods Trade-Off Gain some equity/fairness and stability Lose some economic freedom, efficiency, innovation