Problems in accurate measurement of inflaion/ Compare and contrast inflation deflation

a) Referring to how inflation is measured, explain some problems in accurately measuring inflation.[10]
Solution:
=> Defining the inflation, brief explanation of steps to measure CPI and importance of accurate measures [4]
=> Explanation: [6]
=> Differences in the rate of inflation as consumer consumes different basket of goods =>
=> Rate of inflation varies with regions=> goods produced differs according to regions => so as changes in prices
=> Consumption pattern varies with cultural behaviours =>
=> Substitution effect on the purchase of goods is different on different set of consumers=>
=> Changes in consumption pattern due to store discount rates=>
=> New products brings changes in consumption pattern
=> With time product quality changes=>
=> Comparison of prices at international level=>
=> CPI data is incomparable in the long run=>

b) Compare and contrast the possible consequences for an economy of inflation and deflation. [15] 

Format

Introduction

Similarities and Differences referring both of them throughout.

Conclusion.

Solution: 

Introduction : Definition of key terms , inflation and deflation, [3]

In terms of emphasis should only be on the consequences of inflation and deflation

Similarities: Similar consequences of the inflation and deflation

=> uncertainties

=> rising menu cost

=> makes business forecasting difficult

=> Raises the accounting cost

=> High inflation and deflation leads to recession

=> High inflation and deflation ultimately leads to unemployment 

Differences:   Different consequences due to inflation and deflation 

Household: fixed and variable income groups

firms:

Banks and financial institutions:

Government:

Public debt:

Redistribution effect

Export: 

Import: 

Balance of Payment:

Foreign direct investment

Public goods and their importance to the society (UK)

Public goods are also known as collective goods. These are a special class of goods. These goods can't be controlled i.e. they cannot be withheld for a certain customer without withholding them from all customers (the non-excludability characteristic). Also, once they have been produced, the marginal cost of an additional consumer censoring them is zero (the non-rivalrous characteristic). One example of a public good is the national defence service. Soldiers cannot defend the borders of the region without protecting the consumers inside the borders. This means that the providers are unable to exclude those consumers who consume and benefit from this service but deny to pay for them (through taxes). Such consumers are called free riders. Consequently, private production of public goods is not profitable due to the free rider problem and hence not many public goods are available in the free market. Mostly, public goods are provided by the government of the country.

 The characteristics of public goods are:

• They are non-rivalrous i.e. several consumers can consume the same good without diminishing its value.
• They are non-excludable i.e. an individual cannot be prevented from consuming the good.

Public goods result in positive externalities. Positive externalities are always undersupplied by the market. This is because the marginal private benefit is lower than the marginal social benefit. Take our education example.We all go to colleges because we want to gain education and this means that we might invent something in the future or maybe think of important ideas from which everyone will benefit, even those who did not pay for our education. This means that society is at a benefit and this is know as marginal social benefit which would be higher than the marginal private benefit due to the free rider problem.

One of the major ways by which UK supports the distribution of public goods is by public investments. The graph for public investments made by UK is shown below:

The current United Kingdom government has adopted two fiscal rules:

● The golden rule: over the economic cycle, the government will borrow only to invest and not to fund current spending; and

● The sustainable investment rule: public sector net debt as a proportion of GDP will be held over the economic cycle at a stable and prudent level.

Free-to-air (FTA) describes television (TV) and radio services broadcast in clear (unencrypted) form, allowing any person with the appropriate receiving equipment to receive the signal and view or listen to the content without requiring a subscription, other ongoing cost or one-off fee (e.g. Pay-per-view). In the traditional sense, this is carried on terrestrial radio signals and received with an antenna.

In the UK, around 70 free-to-air television channels and 25 free-to-air radio channels are available terrestrially via the Freeview DVB-T service. Seven HD channels are also broadcast via a public service broadcast multiplex and a commercial multiplex, both DVB-T2.

The UK has 5 public service television broadcasters. These broadcasters receive benefits like the licence fee (in the case of the BBC), guaranteed access to the spectrum (or section of the airwaves) they need for broadcasting, and prominence on TV electronic programme guides. In return they commit to providing services that give a benefit to the public, like news, local programming or cultural content. 

The public service television broadcasters are:

• The BBC, a public corporation, funded mainly by the television licence fee 
• Channel 4, a public corporation self-funded by advertising 
• S4C, a public corporation broadcasting in Wales and funded by a combination of BBC funding, government grant and advertising 
• Channels 3 and 5, whose licences are held by commercial television companies funded by advertising (currently for Channel 3, ITV in England and Wales, STV in Scotland and UTV in Northern Ireland)

The BBC’s Royal Charter sets up their independence and defines what it does. We review the charter every 10 years. The current  runs out at the end of 2016, and we will carry out the next review before that.

The BBC trust regulates the BBC on behalf of the licence-fee payers. The chair of the Trust is appointed by the government.

The Office of communication is responsible for licensing, regulating and monitoring other broadcasters. 

Television licences

The current BBC Royal Charter says that the BBC should be funded by the fees paid for TV licences. If you watch or record TV programmes as they’re broadcast you will need a TV licence.

Reference:

http://njsanders.people.wm.edu/1A/Public_Goods.pdf

http://www.oecd.org/unitedkingdom/43469354.pdf

http://www.auburn.edu/~johnspm/gloss/public_goods

https://www.gov.uk/government/policies/making-it-easier-for-the-media-and-creative-industries-to-grow-while-protecting-the-interests-of-citizens/supporting-pages/public-service-broadcasting

http://en.wikipedia.org/wiki/Free-to-air#United_Kingdom

Public goods and their importance to the society

Meahak Sippy

Country: Japan

A product that one individual can consume without reducing its availability to another individual and from which no one is excluded. Economists refer to public goods(Quasi) as "non-rivalrous" and "non-excludable". (Non-excludability - the goods cannot be confined to those who have paid for it. Non-rivalry in consumption - the consumption of one individual does not reduce the availability of goods to others.) An environmental public good is public open space, which nobody would provide on their own, even though everybody benefits from it being available. Street lighting is another example of a public good. No person can be excluded from using this good, since it is their fundamental right.

         National defense, sewer systems, public parks and basic television and radio broadcasts could all be considered public goods. One problem with public goods is the free-rider problem. This problem says that a rational person will not contribute to the provision of a public good because he does not need to contribute in order to benefit. This results in either an under-provision of public goods or in an overuse of a common access resource. Public goods also have a positive effect on the third party, therefore they have large positive externality.

               A positive externality (also called "external benefit" or "external economy" or "beneficial externality") is an economic activity that imposes a positive effect on an unrelated third party. Similar to a negative externality, it can arise either on the production side, or on the consumption side. For example, the construction and operation of an airport. This will benefit local businesses, because of the increased accessibility.

                Public broadcasting includes radio, television and other electronic media outlets whose primary mission is public service. Public broadcasters receive funding from diverse sources including license fees, individual contributions, public financing, and commercial financing.

Public broadcasters do not rely on advertising to the same degree as commercial broadcasters, or at all; this allows public broadcasters to transmit programmes that are not commercially viable to the mass market, such as public affairs shows, radio and television documentaries, and educational programmes. One of the principles of public broadcasting is to provide coverage of interests for which there are missing or small markets. Public broadcasting attempts to supply topics of social benefit that are otherwise not be broadcast by commercial broadcasters. Typically, such underprovision is argued to exist when the benefits to viewers are relatively high in comparison to the benefits to advertisers from contacting viewers. 

            In Japan, the main public broadcaster is the NHK (Japan Broadcasting Corporation). NHK is an independent corporation chartered by the Japanese Broadcasting Act and primarily funded by license fees. NHK World broadcasting (for overseas viewers/listeners) is funded by the Japanese government. NHK is an independent corporation chartered by the Japanese Broadcasting Act and primarily funded by license fees. Channels have started to allow advertisements to play on their channels in the form of commercial breaks. Since these channels are widely viewed due to their wide availability and free cost, advertisements are sometimes costly, and thus the channel receives large amounts of funds.NHK offers local, national, and world news reports. Under the Broadcast Act, NHK is under the obligation to broadcast early warning emergency reporting in times of natural disasters such as earthquakes and tsunamis. Their national network of seismometers in cooperation with the Japan Meteorological Agency makes NHK capable of delivering the news in just 2–3 minutes after the quake. They also broadcast air attack warnings in the event of war, using the J-Alert system. All warnings are broadcast in five languages: English, Mandarin, Korean and Portuguese (Japan has small Chinese, Korean and Brazilian populations), as well as Japanese. The warnings were broadcast in these languages during the 11 March 2011 earthquake and tsunami. NHK has also been an innovator in television, developing the world's first high definition television technology in 1964 and launching high definition services in Japan in 1981.

Shows on TV Tokyo Network (TXN) have been profitable, but the costs for producing these shows might be much more than what is gained. It also creates a larger tax burden on people making it less profitable.

References ;

1)   http://www.montclair.edu/finance-and-treasury/university-controller/grant-accounting/cost-considerations/

2)    "Public Broadcasting - Why, How?". UNESCO & World Radio and Television Council. Retrieved 17 August 2011.

3)   Simon P. Anderson and Stephen Coate, "Market Provision of Public Goods: The Case of Broadcasting", National Bureau of Economic Research, January 2000.

4)   Cambridge Economics for the IB Diploma Second Edition- Ellie Tragakes

Public Goods and Their Importance to the Society: Sri Lanka

Public Goods and Their Importance to the Society: Sri Lanka

A public good is any good which is non-excludable and non-rivalrous. This means that it is not possible to exclude anyone from using this good and also the consumption of the good by one person does not reduce the consumption of the good by someone else. Examples of public goods include the police force, fire-protection, free to air television and radio programmes. Public goods tend to have positive impacts and benefits for the people of the country and thus these goods have positive externalities.

Governments have to provide public goods because they provide great benefits to the consumers and they promote economic equity. However, these public goods are not produced free of cost. Public goods are produced at particular costs which are paid from the tax revenues of the government. Public goods are funded from the taxes paid by the people of the country.  However, many people tend to not pay their taxes but they are still able to use these goods. Thus, public goods suffer from the free-rider problem. The free-rider problem arises due to the fact that these goods are non-excludable. This means that people who do not pay their taxes are still able to fully utilise these goods without bearing the cost of the good.

The Sri Lankan government provides the people of the country with public services such as education, drinking water, national security and safety, social welfare, health services, free to air television channels and various other public goods. These public goods are funded from the taxes collected from the citizens of the country. However, as many citizens do not pay their taxes, the free-rider problem occurs on a large scale and the government has to redistribute its revenue due to decrease in funds. Public goods such as free to air television channels are not as important as goods like national security, education or drinking water and thus they do not get enough funding from the government and are forced to find alternative methods to fund themselves.

The Sri Lanka Rupavahini Corporation is the National Television for Sri Lanka. This State Television stands for the benefit of all Sri Lankans. The Rupavahini Corporation recognises the people’s diversity of expectations, values, interests and needs and provides the people television programmes in Sinhala, Tamil and English languages.

The Sri Lanka Rupavahini Corporation’s broadcasting and programming is funded through government grants. However, due to insufficient government grants, the channel now raises funds for itself through television advertising. Television advertisements take place in the form of short intervals between the programmes that are being broadcasted. As the government channel is largely viewed due to their free cost, advertisements tend to be costly as they are being viewed by a large number of people. Also these advertisements tend to provide benefits to consumers as they provide information about various products which tend to be useful to the consumers. However, advertisements between programmes can also have negative effects. Large number of advertisements leads to a decrease in quality of the broadcasting material and this in turn reduces the productivity of the channel and leads to unhappy viewing customers and this may also lead to a decrease in the number of viewers of the channel.

Another method of raising funds for broadcasting is through teleshopping. Various goods are advertised on television in the late hours of the night and these advertisements have a contact number through which the good can be purchased. Teleshopping occurs for at least two to three hours at a stretch in the nights and television channels tend to earn large sums of money through the provision of teleshopping. However, teleshopping leads to a large decrease in the number of viewers of the channel as it takes the place of otherwise entertaining broadcasts.

The Sri Lankan Broadcast Corporation (SLBC) is the national radio service of the nation. It has, throughout its history, been committed to its mandated task of maintaining the public service broadcasting in Sri Lanka, by way of providing the public with the information and entertainment, and fostering the social, cultural and economic development of the country. However, the SLBC has also had to introduce a certain amount of commercial programming into its operations, in order to partially finance its predominantly public service broadcasting operations due to the free-rider problem and a reallocation of resources.

I believe that, due to a decrease in government grants being provided to the national television and radio channels of Sri Lanka, the introduction of advertisements and commercial programming is necessary so that these two organisations can continue to successfully fund themselves and provide products free of any additional tax apart from taxes to the consumers. The advantages of advertising and teleshopping for the broadcasting networks outweigh the disadvantages and thus they have introduced and stuck with advertisements and commercial programming or their networks.

References:

Cambridge Economics for the IB Diploma Second Edition- Ellie Tragakes

http://www.gov.lk/web/index.php?option=com_eservices&Itemid=271&lang=en

http://www.rupavahini.lk/about-us.html

http://www.slbc.lk/index.php/about-slbc.html

Public goods and the free rider problem-USA

Public goods and their importance to the society -USA

Divy Dangi

Public good is a good that is non-rivalrous, which means that the good’s consumption by one person will not reduce it consumption for someone else. For example, if a person uses a road, it doesn’t reduce its consumption for the other person travelling on the same road. Another characteristic of public goods is that they are non-excludable, which means that it is not possible to exclude anyone from using it. For example, in a public garden, everyone is allowed to enter and it is not possible to exclude anyone from visiting the park. It is a good with positive externalities. That is it provides positive side effects or external benefits to a third party that wasn’t a part of the decision that caused it. The marginal social benefits are more than the marginal social costs for public goods.

However, public goods are underprovided in the market. This is because of the free rider problem that occurs when people consume the public goods without paying for it. The free rider problem is a problem that arises from the non-excludability of the public goods. Since people who do not pay for the good cannot be excluded, the private firms do not produce the good since it would not be profitable for them to do so. Therefore the market fails to allocate resources to their production. Thus, Private markets do not provide some necessary goods and services, such as national defense.

As a result of the free rider problem the government must usually take over the decision about how and how much of these products to produce. In order to allocate the resources efficiently produces the good or it pays private firms to make these products. The payment for these goods are financed out of tax revenues and are made available to the public free of charge. However, it is very difficult, in the case of public goods, for the government to calculate the benefits arising from the public goods because they are provided free of cost to the public. Therefore, the government uses surveys and cost-benefit analysis to decided weather or not to produce the public good or no. If the benefits are more than the costs, then the government provides the good and vice versa. However, calculating the benefits is difficult as people may exaggerate the worth of the good and provide misleading surveys.

Free-to-air describes television and radio services broadcast are broadcasts that allow any person with the appropriate receiving equipment to receive the signal without requiring a subscription. In USA, there are eight major over-the-air or 'free to air’ broadcast networks: CBS, ABC, NBC, Fox, PBS, The CW, My Network TV and Ion. The CBS, ABC, NBC and Fox are called the Big Four since they are the largest of the broadcast networks. PBS (Public Broadcasting Service) relies on financial support from its viewers rather than government taxes and license fees. The CW, My Network TV and Ion are smaller ‘mini-networks’ and have fewer local affiliates than the Big Four and are not available in all areas of the country.

Since free to air broadcasting is a public good, the free rider problem arises here too. The private firms are not willing to provide the good since because of the free rider problem the firms cannot make a profit and people can view or listen to the broadcasting with paying for it. Therefore, to fund themselves and make profits, they advertise on the broadcasting media. However to fix this problem and increase the quality of their broadcasts by reducing advertisements, the free-to-air services fund themselves using other ways. Taxpayer funding is the most common way to fund free to air television. The government provides the private companies funds to run these channels since these channels are used for emergency broadcasts. Some channels enforce a levy of a license fee for transmission and production costs. Some are funded with a voluntary donation for local transmission and production costs (e.g., PBS). Some are also financed using commercial advertising for transmission and production costs and surplus revenues returned to the government (e.g., CBC Television). Some channels turn to Commercial sponsorship of Consumer products and services where part of the cost goes toward television advertising and sponsorship

To make the free to air television more widely available and cheaper the US government provides a coupon-eligible converter box (CECB). It’s a digital television adapter. The subsidy is provided to provide over-the-air television viewers with an inexpensive way to continue receiving free digital over-the-air television services after the nation's television service transitioned to digital transmission.

The use of government tax revenue and subsidies are useful in providing the free to air broadcasting and in correcting the under allocation of this type of broadcasting. However, the use of tax revenue to provide these products leads to opportunity cost. The money used to provide these goods could be used to provide another good that could be more important like free education, free healthcare or national defense. It also creates a larger tax burden on the taxpayers as the government will increase the taxes to fund the free to air broadcasts.

References

http://en.wikipedia.org/wiki/List_of_United_States_over-the-air_television_networks#English-language_American_commercial_over-the-air_television_networks

http://en.wikipedia.org/wiki/Free-to-air#Funding

Public goods and their importance to the society - India

Arjun Goyal - India

The people of the country require certain amenities for living. These amenities have to be provided by the government of the nation. Since these goods are used on a large scale, they have to be made free of cost so that every person can use them, whether rich or poor. These goods are known as public goods. Public goods are characterised by their non-rivalry and non-excludability. This entails that one person’s use of the good will affect the other person’s use of the good, and that no person can be excluded from using this good, since it is so fundamental. Since these public goods have a positive impact on the public (or third party), these goods have large positive externalities.

            Governments have to provide these public goods free of cost because of their fundamental nature and their widespread use. However, public goods have a common feature with other private goods: cost. Public goods are produced at a particular cost, and this has to be borne by the government. Unfortunately, the government has to bear the cost of these goods fully. The funds for paying these costs come from the taxes paid by the people of the country. However, many of the people of the country do not actually pay their taxes.

            This is where the free rider problem arises. The free rider problem of public goods is a cause of its property of being non-excludable. Since public goods are non-excludable, people who do not pay their taxes are not excluded from using these goods. This results in them being the ‘free rider’, subsequently resulting in the cost to be borne by the other people who actually pay their taxes.

            India is a large country, with a teeming population, which is a little above one billion. The government provides public goods to the population of the country on a large scale. Since the production if these goods are on large scale, the free rider problem is magnified, and more number of people starts to become free riders. Thus, the funds of the government have to be redistributed to provide for all the people although only some of them are paying for them. Thus, the government has to start the process of prioritising. Free television channels are put on the lower end of the priority list, with other matters like free drinking water, electricity and roads on the upper end of the list. Thus, the channels like Doordarshan and other news and entertainment channels have to find funding methods of their own.

            These channels have started to allow advertisements to play on their channels in the form of commercial breaks. Since these channels are widely viewed due to their wide availability and free cost, advertisements are sometimes costly, and thus the channel receives large amounts of funds. Doordarshan and many other public channels have many hours of teleshopping advertisements to gain funds for airing shows on the channel. All India Radio also has many advertisements in between songs played, and it gains a lot of its funds from these sources. However, the presence of commercial breaks reduces the quality of content that is played on the channel. This might in turn reduce the number of viewers due to some unhappy customers. However, advertisements are one of the most effective ways of receiving funds for these kinds of public goods.

High quality production of shows makes them more popular. If government channels make high quality shows, they can syndicate them and sell them to other channels where they can be played. The advantage of this is that not only will the show attract more viewers to the channel and bring funds through the selling of the show, but it will also attract newer audiences from the channel where the show is being played. Shows on Doordarshan have been syndicated and sold to other channels. These shows now play on other channels and gain funds and popularity for the channel. However, the costs for producing these shows might be much more than what is gained from selling these shows. Thus, they are not always profitable.

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