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
Describe Ionization energy or ionization potential and The factors affecting the ionization energies

Rationale of Group Project Group project allows you to pursue authentic learning with your peers, and to apply theories taught in class and textbooks to real world situations.

Explain the approach of characterizing the modern economic environment. Modern economics gives various perspectives or angles to seem at real world economic issues. An economic


Graph the following example and answer the questions: The United States and Japan only produce two goods.  They have the same fixed resources and they are equally efficient, and bo

You just opened a flower shop and are trying to understand pricing issues. You were told that elasticities are very important in determining prices and what products to supply, so

State trading is often associated with canalisation. Canalisation means estaolishment of state monomply in foreign trade. In other words, an item that is canalised can be imported

Fluctuations in Growth Rates: Fluctuations in year-to-year growth rates in early stages were very marked, which indicated that the economy had failed to create conditions cond

cual es la minina

a consumer consumes only two goods x and y is in eqillibrium price of x falls explain the reaction of consumer through utility analysis