Characteristics of economic infrastructure, Microeconomics

CHARACTERISTICS OF ECONOMIC INFRASTRUCTURE:

Natural monopoly is the situation where the provision of a good or a service has economies of scale, which are realised most when a single firm produces the entire output. If a private firm provides these services, it charges high prices and makes huge profits. Hence, Government intervention is required either to regulate the private firm or to replace it. Large upfront costs and long payback periods associated with infrastructure provision make it difficult to finance and manage. Investment in infrastructure is characterised by lumpiness or indivisibility, which implies that large amounts are required at a time. Externalities occur if the benefits or costs of producing or consuming a good affects person other than the individuals involved in a transaction. In fact, this reveals the "public good" nature of infrastructure. Public good possesses two characteristics viz.,  'non-rival' and 'non-exclusive'. Non-rivalry implies that infrastructure can be enjoyed by an extra person without reducing the enjoyment it gives others. Non-exclusiveness implies that people cannot be excluded from consuming the good. Sunk costs are the costs that have already been incurred and which cannot be recovered to any significant degree. Sunk costs can be taken as the opposites of incremental costs. Incremental costs are the costs that will change due to the proposed course of action. Only incremental costs are relevant to a decision. Thus, large volumes, sunk costs, long periods of amortisation, and prolonged project development makes the infrastructure sector investment highly risky. In addition to these main characteristics, infrastructure services have low elasticity of demand. It implies that the demand for these services is not much affected by the prices.   

Posted Date: 11/10/2012 7:30:23 AM | Location : United States







Related Discussions:- Characteristics of economic infrastructure, Assignment Help, Ask Question on Characteristics of economic infrastructure, Get Answer, Expert's Help, Characteristics of economic infrastructure Discussions

Write discussion on Characteristics of economic infrastructure
Your posts are moderated
Related Questions

Determine the oldest ideas in economics One of the oldest ideas in economics is that increases in technology certainly run into natural resource scarcity and so lead to increas

Question: Describe the meaning of ABC inventory control and on what key premise is this system based? The finance department of Electric Corporation gathered the following i

an explanation of the meaning of price ceiling

Are there any economic effects to non-Hispanic whites, given that they no longer represent the majority of the population? Why are these examples important from an economic standpo


graphical illustration describing the influence of an increase in immigrants on the market supply of labour

Curvature of the Iso-quant: An iso-qunat is convex to the origin. This is so because as more and more units labour are employed, the producer would prefer to give up less and

Methodology of econometrics involving three stages 1. Specification of the model using a specific stochastic equation, together with a priori theoretical expectations about th

Would a risk loving person prefer an increase in the chance of winning the lottery by 20% or an increase in the jackpot of 20%