Principles of Business and Economics 1 - Harberger essay - GRADE 9.5
4 views 0 purchase
Course
Principles Of Business And Economics
Institution
Universiteit Van Amsterdam (UvA)
Essay on "The conservativeness of Harberger’s welfare loss estimation", about Harberger's triangles. Subject of Principles of Business and Economics 1, Business Administration at UvA. Was graded a 9.5.
The conservativeness of Harberger’s welfare loss estimation
In his work “Monopoly and Resource Allocation” (1954), Arnold Harberger evaluates
empirically the welfare loss that is brought by the monopolies in the US in the early 20th century. His
work is a response to the antitrust campaigns that were fighting against the monopolies without
having any actual numbers to prove what American community loses from the monopolies existence.
In his paper, he makes three main assumptions: that marginal and average costs are equal, price
elasticity of demand for manufacturing goods is unit elastic, and that the long-run average costs are
10.4% (for which he relied on professor Ralph Epstein’s study “Industrial Profits in the United
States”). I will elaborate more on these assumptions in my main arguments. Using the 10.4% as the
average rate of return, he evaluated how industries’ profits deviate from that figure. This was also an
estimation of the welfare loss. As a result, Harberger concluded that the welfare loss due monopolies
is less than $1.50 per capita at 1953 prices, and its effect on welfare is insignificant: “Our economy
emphatically does not seem to be a monopoly capitalism in big red letters” (Harberger, 1954).
Harberger’s theory is still relevant in modern economics. It helps to understand to what extent
monopolies are “harmful” to social welfare and whether the misallocation of resources due to their
existence is critical.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller alexxandra. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.49. You're not tied to anything after your purchase.
