Opportunity Cost Classification of Goods and Markets

International Public Administration Review, 2015

16 Pages Posted: 19 Oct 2015

See all articles by Davor Mance

Davor Mance

University of Rijeka

Nenad Vretenar

University of Rijeka - Faculty of Economics

Jana Katunar

University of Rijeka - Faculty of Economics

Date Written: January 19, 2015

Abstract

Sixty years ago, Samuelson’s “Pure Theory of Public Expenditure” expounded the classification of goods, and Bain’s “Economies of Scale, Concentration and the Condition of Entry in Twenty Manufacturing Industries” expounded the structure-conduct-performance paradigm. To the present day, rivalry in- and excludability from consumption classify goods, and subadditivity and irreversibility in production classify market structure. Opportunity costs of production in the form of prospective sunk costs incentivise investment and production, and the sunk costs themselves induce subadditivities, specialization and convexity of the marginal rate of technical substitution. Opportunity costs in consumption are determined by the marginal costs of replacement. In light of the recent Nobel price award to Jean Tirole, we revisit some of the forgotten discussions and clarify some of the terminology under a more economic framework of opportunity costs.

Keywords: classification of goods and markets, opportunity costs, prospective sunk costs

JEL Classification: D47, D52, H41

Suggested Citation

Mance, Davor and Vretenar, Nenad and Katunar, Jana, Opportunity Cost Classification of Goods and Markets (January 19, 2015). International Public Administration Review, 2015. Available at SSRN: https://ssrn.com/abstract=2675979

Davor Mance (Contact Author)

University of Rijeka ( email )

Hahlic 6
Rijeka, 51000
Croatia

Nenad Vretenar

University of Rijeka - Faculty of Economics ( email )

Ivana Filipovića 4
Rijeka, 51000
Croatia

Jana Katunar

University of Rijeka - Faculty of Economics ( email )

Ivana Filipovića 4
Rijeka, 51000
Croatia

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