Article I.
Rein in Runaway Costs Associated With Malpractice Insurance
By Daniel H. Belsky, DO, MSc, Boca Raton, Florida in JAOA Vol 103 #6 (June, 2003) p. 263 Letters
I may just be a country doctor from the Pine Barrens of New Jersey, but I have learned some basic math
1.
Through the years. Although there has only been a tenfold increase in the cost of many staple items in the United States,
the cost of medical malpractice insurance has multiplied a thousandfold. Am I missing information that would help
explain why malpractice insurance rates are completely out of line with the rest of our economy?…
How many in the medical profession have been called to the emergency departments of our hospitals to tend to an
2.
Automobile accident victim, a woman with an incomplete abortion, or a woman having a ruptured ectopic pregnancy?
How many in the medical profession have refused to render care to those patients because of their inability to pay?
How many in the medical profession have conducted clinics for the needy in our communities without renumeration
(sic.) or have waived fees for patients in our offices when they had fallen on hard times? If attorneys offered their pro
bono and contingency fee programs to alleged victims of malpractice who cannot afford services and, on successful
Settlement, then collected a fee for hourly services and expenses, that would be a fair and equitable system and
Would ultimately result in lower malpractice insurance rates. I would call that pro bono plus.
Another way to bring down the number of expensive medical malpractice lawsuits involves a time-honored system
3.
to deal with injury in the workplace. It is called compulsory arbitration. The injured employee has his or her case
reviewed by an arbitration board, usually consisting of a union representative, a physician who is an expert in the
area of practice, an attorney, and a lay member. Responsibility is assigned, contributory negligence is determined,
and the board recommends a dollar amount as award. The employee has the option of accepting the decision or
taking the issue further with a lawsuit. If the case makes it to trial, the jury may be informed that the plaintiff turned
down an award recommended by the arbitrators….
There is a move afoot at both the state and federal levels to put a cap on awards for noneconomic damage
4.
(ie., pain and suffering). Arguments abound on both sides of the issue, but I have no doubt that limiting awards to
reasonable amounts would help to drive down the cost of malpractice insurance. Once again, however, we face the
obstacle of attorney-dominated legislatures.
Attorneys have another gimmick to unnerve and harass the medical profession and generate even larger legal
5.
fees: punitive damages. A physician being sued has to seek private counsel to defend against punitive damage, as
that aspect is not covered in a malpractice policy. The threat of the question of liability may force many physicians
to rush to settlement. This aspect of the law should be handled the same as for noneconomic damages discussed
earlier to rein in the runaway costs of malpractice insurance.
Cont’d
6….It has been estimated that approximately 6% of physicians account for 100% of medical malpractice cases. If this is true,
we, as a profession, had better police ourselves more effectively and act quickly when indicated. There are several ways
to deal with chronic offenders. A supervisor could be assigned to oversee patient care provided by a physician with a
history of malpractice lawsuits. A similar program could be instituted in a private practice. Finally, physician retraining
Programs could be initiated by hospitals and medical schools. The physician in question should be held responsible for all
costs associated with his or her rehabilitation program. The state boards of medical examiners have to become more
involved in the process, suspending or revoking the licenses of chronic offenders who defy rehabilitation.
7…Will true reform ever take place in the arena of medical malpractice? I think that it had better- and soon. Our brightest
people are being forced to leave specialty areas with particularly high malpractice insurance rates, leaving academic
Environments for more rural areas of the country with lower medical malpractice insurance rates. What a sad loss for our
academic institutions.
Will young scientific minds continue to be attracted to the medical profession? I fear that most will find other
ways to pursue careers in the sciences. Although the cost of malpractice insurance continues to rise and the fixed costs
of running an office are also increasing, the revenues in physicians’ practices continue to decline in an inverse ratio as
the result of decreased managed care reimbursements.
Organize the following actors into a vertical chain
Patients
Lawyer Services
Lawyers
Labor Market (Lawyers)
Doctors
Labor Market (Doctors today)
Law Firms
Labor Market (Doctors in the
Educational Services
future)
Med Schools
Medical Students
1
Participants
Markets
Lawyers
Law firms
Seller
Labor market(Lawyers)
Buyer
Seller
Lawyer Services
Doctors
Buyer
Seller
Labor Market (Drs. today)
Medical SchoolsBuyer
Seller
Med Students
Seller
Patients
Education Services
Buyer
Labor Market
(Doctors in the future)
Buyer
Article II. Future Of Peru's Airline Industry Rattled By
Crisis
By ROBERT KOZAK
July 16, 2004 1:33 p.m.
Of DOW JONES NEWSWIRES
LIMA -- Uncertainty continued to rattle Peru's airline industry Friday, with the
grounded AeroContinente SA struggling to fly again and other airlines working to
pick up the pieces.
On Monday the government told AeroContinente, which had close to two-thirds
of the market before the ban, to shut down its engines since it couldn't obtain
insurance.
"In these first few days there has been some confusion since it was so
unexpected," Transportation and Communications Minister Jose Ortiz said in a
radio interview Friday.
Travel agents on Friday called the situation "difficult," saying {prices for some
domestic flights had almost doubled, if space could be found.}
The closure has rattled Peru's tourism industry at a crucial moment.
The high-profile Americas Cup soccer tournament is on in a number of cities,
while the important July 28-29 independence day holidays are nearing.
"What can be worked out in the short-term is being worked out, but not without
some upheaval," Carlos Canales, president of the Peruvian Chamber of Tourism,
told Dow Jones Newswires.
While the government had set up a contingency plan, critics charge that it hasn't
been enough.
2
The regional government of Loreto, an Amazon jungle area without road ties to
Lima, ran a newspaper advertisement Thursday saying the region "has been
seriously affected by the wrong-headed government decision to ground
AeroContinente."
Problems Not Unexpected
AeroContinente's shutdown wasn't entirely unexpected, since the U.S.
government last month placed the cut-rate airline 's founder, Fernando Zevallos,
on its list of drug-dealing kingpins. That led insurer Global Aerospace to drop
AeroContinente's policy.
Although the government promised to aid the airline obtain insurance, it later said
AeroContinente hadn't been able to obtain needed coverage.
AeroContinente, however, disputes this and vows to return to the skies.
"We are going to keep flying since Peruvians feel we are their airline ," company
president Lupe Zevallos said Friday in a radio interview. She is the sister of the
airline 's founder.
Airlines
Struggle To Find Airplanes
While military-run Tans Peru airline has increased its scheduled passenger
flights, that airline 's director, Nestor Huaco Onari, told the newspaper Gestion
this week that it has had trouble finding extra airplanes to lease.
Airline officials said that demand for airlines is high due to the summer travel
season in many nations.
Taca Peru, part of El Salvador-based Grupo Taca, has added extra temporary
flights to serve the southern cities of Cuzco and Arequipa during the Americas
Cup tournament.
But the airline 's Peruvian chairman, Daniel Ratti, said Friday that it lacked
airplanes.
"Unfortunately we don't have the capacity to do more in an immediate manner,"
he said in a radio interview.
The nation's other main carrier, LanPeru, majority-owned by Chile's Lan, (LFL)
has been adding flights in an ad hoc manner to meet the increased demand, a
spokeswoman said.
LanPeru has been aggressively expanding in Peru, even before
AeroContinente's legal problems started, and plans to continue to offer more
regularly scheduled flights.
But the airline , which held about a quarter of the market before AeroContinente
stopped flying, has also run into turbulence.
A provincial judge ruled earlier this month that LanPeru didn't meet local
ownership requirements and should stop flying. So far it has kept operating,
protected in part by the emergency ruling from the government.
Other smaller airlines are also trying to pick up the slack, although some areas
that AeroContinente served are still without flights.
Meanwhile, the International Air Transport Association, which represents over
270 airlines , sent a letter to the Peruvian government asking for a rapid solution
to the crisis, according to government newspaper El Peruano.
-By Robert Kozak, Dow Jones Newswires; 511-221-7050; peru@dowjones.com
3
III./V
Participants
Markets
Product Diff
Sellers
Buyers Type of Mkt
Labor
Labor market
n
M
M
Competition
Insurance Services
n
F
F
Bilateral Oligopoly
Airline Seats
y
F
M
Oligopoly
n
M
M
Competition
Insurance agencies
AeroContinente
Airlines
Travel Agents
Retail
Airline Tickets
Consumers
IV.
Participants
Supply
Left
Right
Markets
Demand
Left
Right
Labor
Labor market
A
B
X
D
Insurance Services A
B
X
D
Airline Seats
A
B
C
D
X
B
C
D
Insurance agencies
AeroContinente
Airlines
Travel Agents
Retail
Airline Tickets
Consumers
4
ARTICLE III.
Mitsubishi Motors to Reduce U.S. Production as Sales Slide
By Martin Fackler
July 19, 2004; Page B4
TOKYO -- Hit by plunging sales, Mitsubishi Motors Corp. Friday said it plans to cut production at
its U.S. plant, {a move that could threaten hundreds of jobs}.
At the same time, the Japanese car maker said it was considering new investments in two
Chinese auto companies, part of a turnaround strategy pinned on the booming China market.
A Mitsubishi Motors spokesman said the company hasn't determined the size of the production
cut at its plant in Normal, Ill., which now has the capacity to produce 180,000 vehicles a year. He
said a decision won't be made until September. The auto maker already has warned it is
considering cuts in its U.S. work force.
Mitsubishi Motors has been fighting for survival since April, when German auto giant
DaimlerChrysler AG suddenly dropped plans to help revitalize the Japanese car maker, which
last year posted a loss of ¥215 billion ($1.98 billion). Mitsubishi Motors' problems have continued
to mount as it has admitted hiding defects blamed for causing deadly accidents, scaring away
customers. June sales in the U.S. tumbled by almost half from a year earlier, the company said.
The Mitsubishi industrial group has rallied to save the company, throwing together an almost $5
billion rescue package. Mitsubishi Motors has unveiled plans for steep cost cuts and a new focus
on increasing sales in Asia, where its sales have been relatively strong.
Opened in 1988 as a joint venture with what was then Chrysler Motors, the Illinois factory
currently produces four models: Mitsubishi's Galant sedan, Eclipse sports car and Endeavor
sport-utility vehicle, and the Sebring sedan for DaimlerChrysler's Chrysler unit.
The decision to cut back in the U.S. reflects Mitsubishi Motors' relatively minor presence there. In
the first six months of this year, the company sold just 101,000 vehicles, giving it a tiny 1.2%
share of the world's largest car market.
By contrast, it expects sales in the sizzling China market to show solid growth, rising from an
expected 225,000 vehicles this year to more than 300,000 in five years.
A Mitsubishi Motors spokesman said the company might add to its 20% stake in Hunan, China,
passenger-car maker Hunan Changfeng Motor Co. He said it also may buy a stake in Southeast
Motor Corp. of Fujian province.
Points III – V
Threat: Mitsubishi is planning to cut production of its autos in the US.
5
Original (Points III – V)
MBG04SOrlowskiASSN06
Participants Markets
Labor
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national,
(Y= yes, N=no)
competition,etc) Left Right Left Right
R=regional, L=local
Parts Mfrs.
Seller
Labor Market
(Dana Corp)
Buyer
Extent: I N R L
Seller
Auto Makers
Buyer
Seller
Dealerships
Buyer
Seller
Buyer
f 1 m f 1
Competition
___________
A BX
C D
Y Nm
f 1 m f 1
Oligopsony
___________
A BX
C D
Y Nm
f 1 m f 1
Oligopoly
___________
A B C D
Parts Market
Extent: I N R L
Wholesale
Automobile Market
Extent: I N R L
Retail
Automobile Market
Customers
Y Nm
Y Nm
f 1 m f 1
Monopolistic
Competition
___________
A B
X
C D
Extent: I N R L
Circle one for
each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
Example IV. Newspaper Assignment
I have chosen a rather lengthy feature article from the Washington Post about the
increasing rate of addiction to opiates in Iran, the country with the highest rate of opiate
addiction in the world. This article is especially compelling because it shows the
disastrous social effects of heavy-handed government policy. In Iran’s case, this
mismanagement is evident in the total ban on much of the entertainment industry as well
as the strict economic controls that hamper growth in the job market.
This is the main phenomenon that affects the supply chain of the drug industry in
in Iran: Iran's government regularly fails to produce the 1 million jobs needed each year
to accommodate the new workers entering the labor force from a baby boom still coming
of age. Because the public sector comprises about 83% of Iran’s economy, the labor
market likely to resemble a monopsony, where the single dominant buyer of labor
dictates the market. In this case, there is an increase in the supply of labor, which is not
“balanced” by an increase in demand, causing an aggregate jump in quantity and the
subsequent shifts in the demand for goods and services in upstream markets.
This situation causes in increase in demand for opiates by dissatisfied, poor
Iranians, who, in the absence of normal “venues” for entertainment, turn to drugs as an
escape from life’s many stresses. "Put yourself in their place. If you're educated, you've
got high expectations. When the expectations are not fulfilled, the first reaction is
depression. After that, the use of drugs begins."
6
They have to turn to underground venues to “take the edge off,” but, due
to the size of the addict population, there are many consumers, many drug
venues, and many drug dealers, so that the two lowest level markets are rather
competitive. The market involving consumers, however, would be
monopolistically competitive, as evidenced by the product differentiation in the
drug market. "Opium, we just don't feel it. It's for old people," said Fariboorz
Koocheki, 29, in the junkie park. "For us, it's heroin. And for those younger than
us, it's crack and glass," slang for methamphetamine, the most common of the
synthetic drugs growing more popular in Iran. Superior goods, such as beer, are
alluded to in the article and consumed by the wealthier minority.
The low price of opiates (“about $5 for a gram of heroin, 50 percent pure”)
in the country is evidence that there exists competition in the market between the
opium dealers and the distributors. Mokri estimates that 20 percent of Iran's adult
population is "somehow involved in drug abuse." The estimate includes half a
million dealers, each selling to three or four people, at a total cost of $3 billion to
$5 billion annually.
One would assume that although the border with Afghanistan is rather
porous, considering the operating costs of a land based smuggling operation
requiring large numbers of men and guns to answer to the military threat on
either side of the border, the number of sellers in the international smuggling
market must be much smaller than the number of dealers. Given these “barriers
to entry,” one would expect oligopoly. In the last decade, thousands of Iranian
troops and police officers have been killed battling smugglers, most along the
porous borders with Afghanistan and Pakistan.
Likewise, these smugglers are probably few in number compared to the number
of farmers in Afghanistan’s underdeveloped, rural southern region. Farmers do not
engage in refining the drug, and they most likely sell it at a subsistence level. One
imagines that prices are largely dictated by the smugglers, who know that Afghan farmers
have few, if any, commercial alternatives. This is most likely an oligopsonistic
relationship.
7
Finally, because of the tribal nature of Afghan culture and society, there exist very
few, if any, truly independent farmers in Afghanistan, especially in the southern region
where poppy fields were illicitly cultivated even during the Taliban’s reign in Kabul.
Typically, there is one warlord family per region that collects taxes from the locals while
arbitrating property claims and disputes (through the jirga, or “tribal court”) and in
exchange provides stability via its private militia. These powerful entities “lease” land to
Afghan farmers who may then use it as they see fit in what is probably an oligopolistic
national market.
Opiates of the Iranian People
Despair Drives World's Highest Addiction Rate
By Karl Vick
Washington Post Foreign Service
Friday, September 23, 2005; A01
TEHRAN -- If he could afford it, Ali Nariman would drink beer, he says. But like most
Iranians, he is poor, and so takes his solace in the form of a small gray ball of opium.
Swallowed whole for maximum absorption, the ball takes only half an hour to deliver the
warm, surging relief that inhabitants of the Persian plateau have long associated with
advanced age. For centuries in Iran, opium was regarded as a privilege of the elderly, a
largely medicinal comfort for the pains and worries accumulated over a lifetime of work.
Nariman is 18. And like hundreds of thousands of Iranians turning to harder narcotics at
younger ages, he regards drugs as the only alternative to work.
"We should have jobs," Nariman said, standing in the vast cemetery on the southern edge
of Tehran. In a routine played out every Thursday, the day families traditionally visit the
cemetery devoted mostly to war dead, young addicts sweep in afterward to scavenge the
cookies and dates left on the graves.
"I sometimes find work," Nariman said, "collecting stale bread in town."
According to the U.N. World Drug Report for 2005, Iran has the highest proportion of
opiate addicts in the world -- 2.8 percent of the population over age 15. Only two other
countries -- Mauritius and Kyrgyzstan -- pass the 2 percent mark. With a population of
about 70 million and some government agencies putting the number of regular users
close to 4 million, Iran has no real competition as world leader in per capita addiction to
opiates, including heroin.
When an earthquake leveled the city of Bam in 2003, among the emergency supplies
rushed to the scene were doses of methadone, a synthetic drug used to treat heroin and
morphine addicts, for the 20 percent or more of the population believed to be addicted.
So many Iranians rely on opiates that an influential government analyst suggests the state
itself should consider cultivating poppies.
8
"Yes," said Azarakhsh Mokri, director of the Iranian National Center for Addiction
Studies: "A strategic reserve of narcotics."
Discount Prices
But if the utility of narcotics has roots in Iran's ancient culture, and the discount prices
(about $5 for a gram of heroin, 50 percent pure) stem from proximity to the poppy fields
of neighboring Afghanistan, experts, addicts and government officials agree that
addiction has lately emerged as a corrosive new symptom of the country's economic
failure, a marker for despair.
"You haven't got a job. You haven't got a family. You haven't got entertainment," said
Amir Mohammadi, who at 30 has been an addict for 10 years. "For a few hours, you
forget everything."
Heroin, a powerful derivative of opium, is taking hold among young people whose path
to addiction typically stems from disappointment in the job market. A government poll
shows almost 80 percent of Iranians detect a direct link between unemployment and drug
addiction. Iran's government regularly fails to produce the 1 million jobs needed
each year to accommodate the new workers entering the labor force from a baby
boom still coming of age.
"We haven't reached the peak," said Roberto Arbitrio, head of the U.N. Office on Drugs
and Crime in Tehran. "Unfortunately, there's room for increase."
After Iran's theocratic government came to power in 1979, it displayed zero tolerance for
drugs, filling the prisons with addicts. "We paid a high price for it," said Ali Hashemi,
head of the cabinet-level Drug Control Headquarters.
Having since embraced policies grounded in pragmatism, Tehran has provided surprising
freedom in drug treatment, subsidizing needle exchanges and methadone centers. The
government also has funded energetic efforts to stanch the flow of opiates on the
trafficking routes into the country. In the last decade, thousands of Iranian troops and
police officers have been killed battling smugglers, most along the porous borders
with Afghanistan and Pakistan.
"Our people in Iran have been in the front line in this war on drugs," Hashemi said.
Yet despite such bloodstained evidence, drugs remain so prevalent that many Iranians
describe their availability as evidence of a government plot. After students rioted at
Tehran University in 1999, residents of a locked-down dormitory told of drug dealers
being allowed in to distribute narcotics for free.
"I believe this is the policy of the state, to make all the youth addicted," said Hamid
Motalebi, 22, a police officer on duty in a south Tehran park almost overrun by junkies
sleeping on the grass or staggering like zombies. "It's the lack of policy and management.
9
If they could create enough jobs, enough entertainment, why would people turn to
drugs?"
The Aftab Society, a drug rehab center, stands off a busy street toward the northern edge
of a capital city where fortunes tend to follow geography. The farther north you live, the
richer you are. Aftab's clients are wealthy enough to pay for beds in a detoxification ward
upstairs from the offices where outpatients gather twice a week for group therapy.
"Those who are usually referred to us are educated," said Nassrin Tehrani, an executive at
the Aftab Society. "Put yourself in their place. If you're educated, you've got high
expectations. When the expectations are not fulfilled, the first reaction is depression.
After that, the use of drugs begins."
In one evening session, 18 men and women nodded along as a bearded, middle-aged man
listed withdrawal symptoms: achy joints, aggression, sleeplessness.
"But I got over all of them," the man said, "because I got a job."
A few miles to the south, on the broad streets of Tehran's aging core, taxi drivers and
other working-class addicts lined up for free methadone at an imposing government
building. The National Center for Addiction Studies deals mostly with addicts who have
taken opium for years while essentially functioning normally. Mokri, the center's
director, compares this type of use, called "instrumental use," to the chewing of cocoa
leaves in South America or heavy addiction to nicotine.
But the toll on Iranian society is staggering. Mokri estimates that 20 percent of Iran's
adult population is "somehow involved in drug abuse." The estimate includes half a
million dealers, each selling to three or four people, at a total cost of $3 billion to $5
billion annually. The problem has reached proportions that could be approached only in
terms of management, he said.
"I believe the narcotics dependence system has become so large you should try to enter it
rather than to annihilate it," Mokri said. This year he launched a program of dispensing
tinctures of opium in the medicinal form that physicians prescribed a century ago, when
Iran cultivated its own poppies. He said the country should consider doing so again,
under U.N. supervision, to prevent a replay of the events of the last five years.
As long as opium was in steady supply, Iran's drug problem was relatively stable. But
when Afghanistan's ruling Taliban movement cut poppy production in 2000 and 2001,
opium prices soared. Many addicts shifted to heroin, which became the affordable
alternative.
"What you have is a society more or less used to dealing with opium, all of a sudden
flooded with opiates, heroin, hashish," said Arbitrio, the U.N. official.
Running From Reality
10
Heroin -- and the way it obliterated anxiety instantly when injected -- took hold with
special ferocity among the young, who account for most of the more than 200,000 known
addicts.
"Opium, we just don't feel it. It's for old people," said Fariboorz Koocheki, 29, in
the junkie park. "For us, it's heroin. And for those younger than us, it's crack and
glass," slang for methamphetamine, the most common of the synthetic drugs
growing more popular in Iran.
"Opium is used mainly as a painkiller or medicine," Koocheki said. "But heroin helps you
to run away from the truth, from the facts. Youth wants something that helps us run away
from the reality of everyday life, and that's heroin."
For many young people in Iran, one reality of everyday life is powerful boredom. Though
rules enforcing Muslim dress have been relaxed in the past three years, there is little to
do, even in a city of about 10 million. The stillness of a Tehran street on a weekend day is
almost sepulchral.
"People here can't have a drink in the pub. The young people can't go to a music club,"
said Bijan Nasirimanesh, director of Persepolis, a drop-in center for drug addicts. "You
have the paradox in this country of, coming at you from inside, everything is totally
religious, and from outside, MTV and Western culture."
Located in an alley in Tehran's southern plain, Persepolis serves the capital's most hardcore addicts in its poorest neighborhood, a gray warren of shops, garages and rowhouses.
Among the dozens of former heroin addicts milling in the lobby one morning was
Davood Safdari, who said he used to be a dealer.
"I never had to go to anyone," he said. "Everyone found me."
Bahman Akbarizadeh, 25, wore a gray shirt and an intense look. "I think if people had
hope and entertainment in their life, they would never go to heroin, because they know
the risks."
A handful of women traded stories of habits that grew out of forced marriages and
addicted spouses. A former weightlifter said a hit of heroin cost him less than a sandwich.
There was talk of a new synthetic drug known as "Tear of God."
"In the social sphere," said Mehdi Golpaygani, the general practitioner who sees every
new Persepolis client and found 68 percent started using drugs before age 20, "we have
despair."
In the vast Martyrs Cemetery, which lies at the southern edge of Tehran, Nariman cursed
the 1979 revolution that most of those laid to rest in the cemetery died defending during
the eight-year war with Iraq.
11
"It was a rubbish thing to do," he said. He pointed to Nader Roosh, a homeless boy of 15
who sleeps at night in the shrine of Ayatollah Ruhollah Khomeini, the revered cleric who
championed a rebellion grounded in social justice. Nariman said he saw no evidence of
such change. "The boys in the north, they can drink alcohol. They have enough money,"
he said. "But in the south, we only have money for drugs.”
Participants
Landowners
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Arable Land
Oligopoly
Markets
Afghan Farmers
Buyer
Smugglers
Seller
Buyer
Seller
Iranian Dealers
Buyer
Seller
Illegal Bars
Buyer
Seller
Extent: I N R L
Poppy Plants
Extent: I N R L
Opium
Extent: I N R L
Opiates
Extent: I N R L
Seller
Iranian Firms
Buyer
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 Oligopsony
___________
A B C D
Y Nm
f 1 m f 1 Oligopoly
___________
A B C D
Y Nm
Competition
f 1 m f 1 ___________
A B C D
Narcotics (Heroin, Meth, “Tear of God,” etc.)
Dissatisfied Iranians
Buyer
Y Nm
Extent: I N R L
Y N
Monopolistic
Competition
m f 1 m f 1 ___________
A B C D
Monopsony
f 1 m f 1 ___________
A B C D
Labor
Extent: I N R L
Circle one for each
market
Y Nm
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
Monopolistic competition requires that you show product differentiation of some kind or
that the product is not standardized. To show product differentiation you might
indicate the existence of labels, brand name advertising, etc. In monopolistic
competition there also must be many firms in the market with easy entry and no long
run profitability. You have reversed monopolistic competition and competition here.
12
Example V.
Will the R&D Tax Credit Grow?
Business Lobbies for Expansion, but Bill May Get Too Pricey
By BRODY MULLINS and ROBERT GUY MATTHEWS
Staff Reporters of THE WALL STREET JOURNAL
November 26, 2005; Page A4
WASHINGTON -- With the research and development tax credit up for renewal,
U.S. high-tech companies, manufacturers and pharmaceutical houses are
making headway in their long-running effort to get Congress to enlarge the tax
break.
The Senate has passed, and the House Ways and Means Committee has
approved, an expansion of the credit backed by a coalition of companies led by
Microsoft Corp., Boeing Co., United Technologies Corp., Electronic Data
Systems Corp. and Guidant Corp. The group won a surprising victory this
month when the expanded R&D credit was attached to a broader tax bill
Congress expects to approve next month.
Still, it is unclear whether the expanded break will survive final negotiations
between the House and Senate. The one-year cost for the expanded break,
which would expire at the end of 2006, is estimated at $9.9 billion. It faces stiff
competition for space within the five-year, $70 billion tax bill, and if tax writers
deem the expanded credit too expensive, they will simply extend the current R&D
credit, which costs $7 billion a year.
"To me, legislation is like sports: many times things will happen in the last two
minutes that will completely change the game," says Monica McGuire, a lobbyist
at the National Association of Manufacturers who helped coordinate the
industry's lobbying coalition.
Supporters of the expanded tax break found that out the hard way last year.
Although the bigger break was included in two tax bills -- and once cleared the
Senate without a single opposing vote -- it was ultimately rejected as too
expensive.
The credit was enacted as a temporary provision in President Reagan's first tax
bill in 1981. Since then, it has been extended 11 times, typically for just a year or
so, and was allowed to expire only once -- for a year in the mid-1990s. In 2004, it
was extended until the end of this year.
Industry lobbyists spent years pressing Capitol Hill's tax writers to make the tax
credit permanent. But after repeated failures, lobbyists recently began seeking an
expansion of the credit instead.
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The credit offsets research and development costs for companies that need to
invest time and money well in advance of rolling out new products. But fewer
companies qualify for it nowadays because it is tied to a base period in the
1980s. If revenues increase faster than investments in research, companies
qualify for little of the credit.
In trying to expand the break, companies ran into opposition from two powerful
lawmakers: former Sen. Don Nickles (R., Okla.) and House Ways and Means
Chairman Bill Thomas (R., Calif.). The industry caught a break last year when
Mr. Nickles didn't run for re-election. Lobbyists went to work, seeking broad
support for the expanded credit among Mr. Thomas's Republican colleagues on
the Ways and Means Committee, including Rep. Dave Camp (R., Mich.), a senior
member of the committee, and Rep. Eric Cantor, a three-term Republican from
Virginia who also serves in the House Republican leadership.
In their arguments, lobbyists used a chart showing that most industrialized
countries have far more generous tax breaks for investing in new technologies
and manufacturing techniques than the U.S. "Finally, the light went on: This is a
factor when companies decided whether to build in the U.S. or go abroad," says
Ralph Hellman, a lobbyist for the Information Technology Industry Council, which
represents the high-tech sector.
Sen. Orrin Hatch (R., Utah), a longtime supporter of the tax credit, says, "If we
don't give some incentives for creativity, we could start to slip as the world leader
in high tech."
By the time Rep. Nancy Johnson (R., Conn.) introduced the expanded credit a
few days after April 15 this year, 19 of the 24 Republican members of the Ways
and Means Committee were cosponsors. A 20th Republican has since signed on
to the bill.
While Mr. Thomas didn't include the expanded credit in the $70 billion tax bill he
introduced earlier this month, Ways and Means members voted to add it during a
committee vote.
But that doesn't guarantee the provision will survive. Due to a quirky
congressional rule, the tax bills are capped at $70 billion over five years. The
centerpiece of the Senate bill is a $30 billion provision to prevent millions of
middle-income taxpayers from being hit by the alternative minimum tax.
In the House, Mr. Thomas's bill excludes the alternative-minimum-tax patch in
order to include a $20 billion measure to extend President Bush's 15% tax rates
on capital gains and dividends from the end of 2008 through 2010. Republican
leaders in both chambers would like to included both items in a final bill.
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Also on the table are another $27 billion in unrelated tax breaks that do
everything from encouraging low-income Americans to save for retirement to
allowing taxpayers to deduct state and local taxes from their federal tax bills.
With a cap of $70 billion, tax writers will be pressured to narrow any provision in
the bill, including the R&D credit.
"We are optimistic, but we are also very worried that it could get dropped in final
negotiations," says Mr. Hellman, the high-tech lobbyist.
Participants
Labor
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Monopol.
Seller
Labor mkt
Markets
Software corpBuyer
Businesses
Seller
Buyer
Extent: I N R L
Y Nm f 1 m f 1
Software mkt
Extent: I N R L
___________
Compet.
A B C D
Monopol.
Y Nm f 1 m f 1
Compet.
___________
A B C D
Y Nm f 1 m f 1
___________
A B C D
Y Nm f 1 m f 1
___________
A B C D
Y Nm f 1 m f 1
___________
A B C D
Y Nm f 1 m f 1
___________
A B C D
Write down
one market
Type
Circle One of the
four possibilities
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
There will be a supply shift left representing more expensive labor.
15