What are Societal Resources? I suppose, they are all the resources a particular Society can command. Some of these resources are consumer goods. If they are perishable- e.g. fresh fruit- the quantity of them is fixed at any moment in time though availability might depend on cost of delivery and display.
The opportunity cost of a particular person consuming a perishable fruit is simply that some other person does not get it. Thus, if the thing is allocated through the market and there is a market clearing price, the last fruit consumed by the marginal consumer has as opportunity cost the lost utility which would have been gained by the consumer willing to pay very slightly less to buy and eat that fruit.
Thus, suppose I go to the market and buy the last consignment of apples to distribute through my chain of high class green grocers, the opportunity cost is to the poorer people who have to shop at the budget green grocer. My customers, by paying more, get to eat apples. The customers of the budget shop have to buy some other fruit.
This may matter for normative but not positive economics. Suppose the rich already have lots of healthy food and the marginal increase in their health is derisory. On the other hand, young kids would benefit from cheap fruit in a manner which benefits society. If this were common knowledge and if there were no free-rider or preference revelation problem, and the Society is normatively committed to Benthamite Utilitarianism, then some subsidy or other allocation scheme might be implemented such that young people get more of the fruit. The Government, or some Charitable Organization, may buy fruit and ensure that all School Kids get an apple a day. Since the young become healthier and thus will be more productive, there is a benefit which will accrue to employers and others in Society. Thus, an externality or source of market failure can be tackled either by coordinated action or, by 'Muth-Rational' agents acting individually.
Monopoly too can occasion market failure if less of the good is produced than would be the case under open competition. However, if the good is produced by a 'natural monopoly'- e.g it has big scope and scale economies- then the solution would not be to abolish or otherwise stigmatize the monopoly. Indeed, it may be subsidized so that its marginal reward matches marginal social benefit and thus production and consumption would be greater.
Steve Landsberg still does not understand this. As I have previously pointed out, he does not understand that opportunity cost is a 'global' concept. It is the best alternative foregone, all things considered. It isn't a book keeping concept or accountancy convention.
Landsberg writes in the WSJ
Here’s an economics brain teaser: Apples are provided by a competitive industry.
In which case everybody is a 'price taker'.
Pears are provided by a monopolist.
In which case the monopolist is a 'price maker'. He sets the price.
Coincidentally, they sell at the same price.
This can't be a coincidence. The monopolist sets the price of pears to maximize profits. Clearly the price elasticity of demand of the two goods is the same- i.e. they are perfect substitutes- which is why the monopolist has set the same price. (Alternatively, apples are supplied by a 'competitive fringe' which is a price taker at the price set by the 'dominant firm')) Even if apples and pears weren't completely perfect substitutes, the monopolist would face a kinked demand curve (as in oligopoly) at that price. Alternatively, this is like 'dominant firm, competitive fringe'. The monopolist sets the price and satisfies a large portion of demand. The competitive fringe takes that price and supplies the rest.
You’re hungry and would be equally happy with an apple or a pear.
in which case you are indifferent to normative considerations
If you care about conserving societal resources, which should
since the word 'should' is used, this is a normative question. It is not part of positive Economics. On the other hand, suppose everybody is Kantian, then the answer would be categorical. In other words what you 'should' buy is what everybody should buy. But if it is one fruit rather than another then the entire stock of one perishable fruit would go to waste. It follows that, in the short run, the categorical imperative says no normative consideration should apply.
you buy?
Medium, to long, term, this depends on information about external costs and benefits associated with the two types of fruit. Suppose pears are less resource intensive and better for the environment. You should buy them. On the other hand, suppose apple producers are known to be poor but virtuous while pear producers are known to be terrorists. Then, pears are 'repugnant' and you should buy apples.
Most of my sophomore-level economics students can solve this problem,
which can't be solved on the basis of the information given. Apples and pears are perishable. What is important is that they are all eaten by people who would benefit from eating them. True, letting one type of fruit go to waste may send a 'signal' of preference intensity- but that is a matter of political strategy. It is not a question for economics.
which I posed on an exam. Almost nobody else can. I’ve tried it out on a lot of smart lawyers, accountants, entrepreneurs and scientists. Neither can the latest version of ChatGPT.
Because it is a silly question on the order of 'how long is a piece of string'? True, if you are being taught by a maniac, you may have to give whatever crazy answer he expects- e.g. 'string is 3.2 meters long. Anything less or more is blasphemy against the Divine Spaghetti Monster'.
First I’ll tell you the answer; then I’ll tell you the moral. In a competitive industry, prices are a pretty good indicator of resource costs.
Sadly, no. There could be a 'tragedy of the commons' or an externality which is being ignored.
Under a monopoly, prices usually reflect a substantial markup.
Or a substantial mark down so as to create a barrier to entry and enable further exploitation of scale and scope economies. This may yield financial losses but less tightly taxed Capital Gains. If the industry is a 'natural monopoly' prices might always be lower than under competitive conditions. Similarly, if there are negative externalities, prices may better align with Social Costs.
So a $1 apple sold by a competitor probably requires almost a dollar’s worth of resources to produce.
No. A whole bunch of people may be able to scrape a living by plucking apples and selling them on street corners. The opportunity cost to society here is that those guys may be more productively employed in some other way. To give an example, suppose there is a Government monopoly on cigarettes and the price that is set is high because the thing is a demerit good. Some people may roll cigarettes and sell them and just about survive in this manner. But that's not a good thing. There are better things they could be doing with their time. Getting used to having a proper job would raise not just their productivity and future earnings, but also Government revenue and net Social Benefit.
A $1 pear sold by a monopolist is more likely to require, say, 80 cents worth of resources.
Not if the monopolist has economies of scope and scale. Having a larger market means you can have a much lower mark-up. Indeed, this is what might make an industry a 'natural monopoly'.
Equally, the quality of the product matters. Consider a situation where there is only one Doctor on our island. There are plenty of people who have their own family recipes for potions of various types. The Doctor, who is able to prescribe proper medicines may charge much more than then the various competing quacks in the neighborhood. But what the Doctor sells actually cures people. Money given to him yields a result beneficial to society. Money given to charlatans is wasted.
To minimize resource consumption, you should buy the pear.
Currently, many licensed Pharmacies compete to supply medicines. I am the monopolist of 'Socioproctological Suppositories' which, if you are very stupid, you may substitute for safe and effective remedies. Landsberg thinks you should ignore Doctors and Pharmacists and big Drug Companies because they compete with each other in an expensive manner- e.g. Doctors have to study for many years before they are allowed to practice. Drug Companies have to spend millions getting their products tested and approved. I don't spend a penny on my Socioproctogical Suppositories. So that's what you should buy- unless you can lay your hands on Landsberg and can shove him up your arse gratis.
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