Monopoly Power, Public Expenditure, Taxation, and Economic Surpluses

Posted on Dec 13, 2024 in Economy

Bases of Monopoly Power

The bases of monopoly power are related to why monopolies are born. Knowing the cause that motivated the birth of a monopoly, that same cause is the source, the force that makes maintaining its existence. So, then, knowing the reason for their appearance can determine the basis of his power. The causes for the occurrence of the monopoly are:

A – By the particular conditions of production of a good that make it uneconomical to the existence of more than one manufacturer of a product in the same region. When the conditions of production of goods requiring a specialized technique, this causes an increase in production costs of that good, so it is uneconomical to produce more of goods and services that demand. However, when the basis of this hypothesis in a market there is more than one manufacturer, the company that is more consolidated in the region, by way of competition, try to lower the price of product up to half the cost of production, so that the remaining less consolidated companies can not bear not to make profits. In this situation these other companies leave the market or the company consolidated in the market will eventually absorb less consolidated companies. A company is less well established when he has to bear greater financial burden, increased debt resulting from the investments made recently or in the past. Which is more consolidated, to have less financial burden will be with better conditions of competitiveness and thus are natural monopolies.

B – By the limitations of market size. Sometimes, in a particular market to be reduced, the existence of a company is enough to supply all the demand in that market. Also, if this company is consolidated, will be able to compete. With this premise is not logical that in the same market to install another company to produce the same good, as there was one that supplies all the demand. It is not logical to install because it would not sell anything, and for the case if we will sell in the same situation as before: the more consolidated, better conditions of competition, eventually absorbing the least consolidated and staying alone in the market.

C – Based on the costs of producing the good. If a company in a market and dominates owns the patent on an essential use equipment in the production of that good or service, will have production costs lower than other companies have produced the same product. The patent is an intellectual property right is the creator, the inventor of the machinery that is essential in the production system. This right is subject to transmission and allows power to charge a yearly fee to those gentlemen who use that good or service. Canon that the company has the patent will not have to endure in the production of goods or services.

D – When one of the companies established in one market dominates or is the owner of the essential raw material in producing a good or service. We are in the same system as before.

E – Where in a region all available workers unite to form labor associations and a local company that contracts with labor association, absorbing the entire workforce of the county or region, in return for some remuneration. If other companies are attracted to this market to produce the same product, you will find that they have no employees. If you want to produce will bring workers from other regions or other regions, which means an additional cost for transportation. The first company will have production costs lower than the second if the salary supplement paid is less than the additional cost of transport that supports the second company.

F – Because of the law. The tax law creates a monopoly and that would be the basis of his power.

Public Expenditure

It can be defined as expenditure incurred by the Government to perform a public service to meet a public need and to meet the obligations the State and other public bodies. Public spending assumed by the State is increasing, meaning that the state increasingly covers more areas of social life, increasingly more involved in the sector of the economy. The state increasingly takes on more social responsibilities. The areas in which it intervenes:

A – Each of the ministries.
B – Autonomous regions. Increasingly, major powers and to fulfill its public spending in order shoot.

Public spending is composed of four major headings:

1 – Current expenditure. It is composed of those purchases of goods and services by the State and are intended to ensure the functioning of public services, pay interest on public debt and current transfers paid. With current expenditure, the Government exerts a direct action of goods and services, ie acts as a consumer more.

2 – Expenditure transfers. It is that part of the public expenditure amount of which is intended to finance current operations or capital from other sectors of the economy where there is no consideration to the State by the recipient. This item consists of:

A – Expenses generated
B – Social Security
C – Pensions paid
D – Unemployment benefit
E – Production subsidies, compensation for flooding when it has been declared a disaster area

3 – Capital public expenditure. It is that part of the public money and that the Government intended to real investments, transfers of capital and change of financial assets and liabilities. The real investment is public expenditure by the State to acquire capital goods as an economic resource , ie purchase of machinery, purchase of plants, land to generate wealth from the economic point of view. Transfers of capital is the amount of public money the state and intended, in the form of grants, to finance all or part of the actual capital investment made beneficiaries. Current transfers is the set of subsidies granted by the State in favor of producers of goods and services that are intended for use, in order to influence the determination of the consumer prices of these products. The variation of liabilities and financial assets. The financial asset is the money owned and liabilities, monetary debt of the State. Like any legal person, the balance consists of the assets and liabilities. The assets are what all those rights which are owned by the company and liabilities consists of all obligations, all debts that the company has. The assets and liabilities, in any financial year must be equal: the value of assets must equal liabilities. On a financial level of money, assets must be equal, at the close of the fiscal year, the liabilities. It may be that this equality does not exist in this case to get the balance between assets and liabilities can have this item of public expenditure to achieve this goal.

4 – Multi-expenditure. Is that expenditure by the State whose implementation spans several years, never exceeding four, beginning the expense in the budget period when the destination is approved and to finance large public investments.

Adjustment State

Consists of intervention by the State during the production of goods and services and their distribution, in order to control the way we produce and distribute, ensure that the production and distribution meets our guidelines. This function is performed by the Government through regulatory agencies. An example: the environment agency. Its mission is to control the production and distribution system of goods and services to prevent these adverse effects occurring in other social areas that are vital to ensure a better quality of life. Try to avoid biological contamination and noise. The consumer agency and user are intended to prevent abuse. The agency conservation of flora and fauna, conservation of the continental shelf … The cost, the administration assumes the existence of these agencies, is insignificant when compared to the cost to private enterprise to comply with regulations established by the State for the production and distribution of goods and services. It is also negligible when compared to the high profits it makes to society that the system of production and distribution of goods and services are subject to state regulations in place. These agencies seek to avoid the abuse of private enterprise, prevent the emergence of monopolies, prevent pollution and noise, avoid the existence of medical devices and food in poor condition, to prevent abuses in the bag, in the labor market … ; avoid any abuse that may occur in the economic and social life. The problem of state regulations aimed at defending the general interest is that the private company reacts aggressively and with a major political force. When you are developing the content of the regulations, the private company that is going to be affected during the process, exerts strong pressure for regulation is the least disruptive as possible to its production or distribution system. The particular interest press at the time of preparing the legislation. Contributors, citizens have less force in this period, simply because they are more dispersed and this has the consequence that sometimes are not as effective state regulation to achieve its goal: to eliminate the negative consequences that the production system creates.

Tax Rates

1 – Direct tax and indirect taxes.

Direct Tax: is that you only pay once a year, regardless of how many times you repeat the constitutive activity of the taxable event. (Tax on income, individuals on the estate, IAE)
Indirect taxes: is one that must be paid each time you perform the act establishing the taxable event (VAT, transfer taxes and stamp).

2 – Tax income of individuals. It is a direct tax of natural person levied on income of the person depending on the amount and personal circumstances of this. The taxable event is constituted by the following:

A – Personal employment income. Payments which a person intended to be as a result of worker, ie, is a worker as an economic resource, with all expenses you need to do that worker to work on behalf of a third person, the entrepreneur.
B – Investment income. All capital income producing furniture is establishing the taxable event. The interest generated by the banking, dividends from holding shares, generating interest treasury bills …
C – Yield equity. The income derived from immovable property will be part of this tax. And if there were real property not leased the income of these goods is the result of applying 2% of the rateable value of the home and will be the home values higher.
D – Net returns obtained by the business and professional activities. (Being self-employed person). Call to tax the net income on their own. The net income performance for those gross income. The difference, positive or negative, this fact would be subject to tax.
E – Increases and decreases in assets. The benefit would be positive or negative results when one person transmits, sells goods from his heritage. The acquisition value of the asset minus the disposal of the property value, the number of years that either belonged to the estate of the person. The ratio is the performance that has contributed.

3 – Tax on the assets of the individual. It is a direct tax levied on the mere ownership of assets. The income tax is levied on the yield obtained. This tax is levied on the ownership of an asset that generates procedure. The taxable event is what all sorts of economically valuable goods and rights that form part of the assets of an individual.

4 – Corporation tax. As in the individual, the income tax levied on the performance obtained in This tax is levied on income which the company during an accounting period. The taxable event comprises the following yields:

A – Economic performance of farms, consisting of the performance was obtained in the normal behavior.
B – Yield obtained from any wealth assets belonging to the legal person and is not intended to carry out economic activity.
C – Increases or decreases in assets, which has the same concept as above.

5 – Transfer tax and legal acts. It is divided into three sections:

A – Transfer tax: an excise tax is levied on the movement and business transactions all the assets belonging to all natural and legal persons. The fact that tax assessment consists of: any transfer or payment and perform in events during life. If the transmission is free of charge and acts mortis-cause we would not be in the presence of inheritance and gift tax. transfer of all property and economic rights of individuals and legal entities. the constitution of real rights, leases, alimony for life and administrative concessions.
B – Secretaries operations: is that indirect taxes on the changes occurring within the patrimony of the legal person. It consists of: a constitution of a legal person, an increase or decrease social capital, merge, transform, winding up a company.
C – Stamp: it is an indirect tax levied merely obtaining public documents. The taxable event is the awarding of the three types of documents, legal documents, business documents, bills of exchange and those where the broker involved or obtaining a notary commercial-administrative and legal documents.

6 – Value-added tax (VAT) is an indirect tax, typical of the business and professional, which taxes consumption, the supply of goods and services supplied by professionals and entrepreneurs and the import of goods. VAT is only generated when the parties to the transaction that takes place belonging to the European community. If one of them is extra, we will be exempt from paying this tax. The taxable event comprises:

the delivery of goods and services performed by professionals for consideration, provided that service delivery is representative of a regular basis.
imports of goods and services.

7. Tax on new construction, new works. It is an indirect tax and municipal character. The taxable event is constituted by the achievement of the following acts: – subdivisions and PAI – earth moving – new works – structural changes – scaffolding installations.

8. Activity Tax (IAE) direct tax levied on the fact of taking up an economically valuable. It is formed by the grouping of three taxes: tax licenses (named above). Gravel from the mere exercise of a trade, business, professional and artistic. What was the last solar tax, levied on the mere possession of land which have the status of solar, not built or estándolo buildings are inadequate, provisional, ruinous , etc. tax filing. Gravel simply because to use and enjoy a local commercial, industrial, professional or artistic.

Surplus of Producer

The net profit obtained by the producer as a result of a fall in price. If you increase the net profit should increase, and producer surplus inversa. The impact on payment to factors of production, long term, the short would be an extraordinary benefit that we receive the above productor. If above point balance, there is no surplus production, since we do not leave the market.

Consumer Surplus

Example: in the first case, the value that gives the consumer total utility equals 1000 pts. However, the market actually pays 500 pts. There is therefore a surplus of utility that is equal to 500 pts. In the second case, the surplus would be equal to 400, third at 300 … and so on. Is consumer surplus of goods is the difference between the maximum amount that consumers would be willing to pay for the number of units of goods consumed and the amount you actually pay at the mercado. Graphically consumer surplus is in the area falls below the demand curve and above the curve of precio. If is an increase in the price of product, consumer surplus falls, and vice versa if the product price decreases, there is an increase of over consumer.

National Income and Indirect Taxes

At the beginning they talked about the economic flow on a simple economy. In a simple economy demand equals supply: all that is produced is consumed. Here, the value of all goods and services, was the national product. In addition, all payments made by the company to use production invoices family were part of the national income, and as the demand and supply were equal, in this simple economy, the value of national output and income Staff also were equal. In the complex economy it is impossible for the domestic product is equal to national income. The production value of an asset, which is charged by the factors of production is equal to the market price of such property, namely that national income equals national product. The national product is equal to the monetary value of all final goods and services produced over a year and valued at market price. National income is equal to the sum of the amount paid to the factors of production. They are different because: inputs are not getting the full amount of revenues which are collected through the sale of products on the market. Some of these income goes to government in the form of indirect taxation. In conclusion, the national product is no different from the national income. National income is equal to the value of net national product less indirect taxes. Personal income is divided among the following items:

A – One part is intended to pay corporate tax (35% of net profit)
B – Addition to social security payments
C – Addition is intended to reserves social. Social Reservations is part of the net profits of a company after paying corporate tax and social security which is held by the company, which is not distributed to the factors of production.

Reservations can be social – legal reserve: the law establishes mandatory 5%. -Statutory: percentage to establish the bylaws governing the operation of society. – Voluntary social means that part of the net profit for a year the general meeting of shareholders decides to allocate to the reserve. The purpose of the reserve is to have a regulation, an amount of money to deal with the unexpected payments, ensure liquidity in the treasury of the company.

D – The last part is paid to the shareholders as dividends.