Topic 2: Markets, Government, Public Policy and Energy Governance Flashcards
1
Q
What are Governments?
A
Centralised political decision making
Distil social values and preferences on behalf of community
2
Q
What are Markets?
A
- Decentralised decision making mechanism
- Individual agents seek to maximise benefits of trade
- Price signals guide investment, production and consumption
- Neoclassical welfare economics: scarce resources are allocated efficiently (ie aggregate benefits by all consumers and producers are maximised
3
Q
What is a Free market?
A
- Free market completely independent of gov is a myth due to legal system and other social/policy rules
- Efficient market is better than ‘free’ market (hence need policy frameworks)
4
Q
What is an efficient market?
A
- Efficiency = optimal use of scarce resources = maximised consumer and producer surplus (welfare)
- Pareto optimal: no one can be made better off without making someone else worse off
- Supply and demand curve if you want HASS
- Short term efficiency = allocative efficiency = pareto efficiency = static efficiency
- Static efficiency = in an instant in time, operational (use and generation)
- Dynamic efficiency = in the future (investment and innovation)
- Allocative efficiency = is a state of the economy in which production represents consumer preferences
5
Q
What are Deadweight losses?
A
- Non-realised benefits of trade
- Occurs due to higher or lower prices or reduced quantity than market optimal
- Government intervention impacts price or quantity in the market (subsidies, licensing requirements, price regulation)
***Check Graph (be able to draw)
6
Q
What is a perfect competitive market?
A
- Buyers and sellers are price takers (many firms) (no-one can influence price)
- Homogenous goods (electricity is same)
- No barriers to entry or exit (e.g. cost of entry)
- Perfect information
- All costs and benefits are prices
7
Q
What is market failure and how does it occur?
A
- Occurs when markets fail to deliver an efficient allocation of resources
- Externalities (positive and negative): costs or benefits not priced
- Public goods (non-excludable and non-rivalrous): provision of good to one agent means it is available to all agents at no extra (marginal) cost
- Market power (increasing returns to scale): firms have can influence market prices
- Information asymmetry: insufficient information to allow rational decision-making or imbalance of information
- Institutional problems (e.g. policy/inertia)
8
Q
What are Market Barriers?
A
- Capital market barriers
- Split incentives (principal agent problem)
- Regulatory barriers e.g. transaction costs, compliance costs
9
Q
Government Failure
A
- When governments make them worse than they would have been
- Regulatory capture: regulators overly sensitive to regulated entities (instead of consumer interests)
- Poor info in decision-making: info asymmetry with market participants
- Weak incentives: no skin in the game
- Politics: political short-termism (myopia), political self-interest
- Compliance costs: direct financial, indirect, administrative, substantive (new investment required)
10
Q
What are the criteria for good policy making?
A
- Effectiveness, efficiency, equity, institutional feasibility (most imp)
- Implementation is key
From review notes process needs
- Transperency
- Inclusivity
- Community support
11
Q
Steps in Process
A
- Identify issues/set objectives
- Consider options
- Consult stakeholders
- Make decision
- Implement policy (very important. Eg pink batts)
- Review
12
Q
What are issues in policy making?
A
- Non-quantifiable costs and benefits
- Value judgements (what is fair)
- Wicked problem e.g. climate change (changing conditions and input meaning a resolution is impossible)
- Political vs bureaucratic tension
13
Q
Real world policy
A
- Brings discipline to chaotic non-linear process
- (Ideally) Ensures/increases transparency, accounting of relevant views, community confidence
14
Q
Aus gov basics (executive, legislative, judicial powers)
A
- Green paper: sets out different policy options (invites discussion)
- White paper: statement of policy (after green paper and consultation)
- Both high level, low programmatic detail
- Regulated Impact Statement (RIS) process (at bureaucratic level)
- Evidenced based, cost-benefit analysis, consultative
15
Q
Aus energy (gas and elec) governance bodies
A
- COAG (state and federal) - set policy goals, receive advice from expert departments
- AEMC (specialist) - make energy market rules
- AER (technocratic/economic) - enforces energy market rules
- AEMO - operates market and technical system
