Microeconomics Externalities

What Is an Externality?
An externality is an economic term referring to a cost or benefit incurred or received by a third

party. However, the third party has no control over the creation of that cost or benefit.
An externality can be both, positive or negative and can stem from either the production or
consumption of a good or service. The costs and benefits can be both private--to an individual or an
organization-or social, meaning it can affect society as a whole.
Example
Pollution emitted by a factory that muddies the surrounding environment and affects the health of nearby
residents is a negative externality. The effect of a well-educated labor force on the productivity of a company
is an example of a positive externality.
Understanding Externalities
Externalities occur in an economy when the production or consumption of a specific good or service
impacts a third party that is not directly related to the production or consumption of that good or service.
Almost all externalities are considered to be technical externalities. Technical externalities have an
impact on the consumption and production opportunities of unrelated third parties, but the price of
consumption does not include the externalities. This exclusion creates a gap between the gain or loss of
private individuals and the aggregate gain on loss of society as a whole.
The action of an individual or organization often results in positive private gains but detracts from
the overall economy. Many economists consider technical externalities to be market deficiencies, and this is
the reason people advocate for government intervention to curb negative externalities through taxation and
regulation
Externalities were once the responsibility of local governments and those affected by them. So, for
instance, municipalities were responsible for paying for the effects of pollution from a factory in the area while
the residents were responsible for their healthcare costs as a result of the pollution. Following the late 1990s,
governments enacted legislation imposing the cost of externalities on the producer. This legislation increased
costs, which many corporations passed on to the consumer making their goods and services more expensive.
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Externalities and Market Inefficiency Industrial Sector, Sialkot.
Faculty of Business Administration-(2) Page 1
Overcoming Externalities
There are solutions that exist to overcome the negative effects of externalities. These can include
those from both the public and private sectors.
Taxes are one solution to overcoming externalities. To help reduce the negative effects of certain
externalities such as pollution, governments can impose a tax on goods causing the externalities. The tax,
called a Pigovian tax-named after economist Arthur C. Pigou, sometimes called a Pigouvian tax-is considered
to be equal to the value of the negative externality. This tax is meant to discourage activities that impose a net
cost to an unrelated third party. That means that the imposition of this type of tax will reduce the market
outcome of the externality to an amount that is considered efficient.
Subsidies can also overcome negative externalities by encouraging the consumption of a positive
externality. One example would be to subsidize orchards that plant fruit trees to provide positive externalities
to beekeepers.
Governments can also implement regulation to offset the effects of externalities. Regulation is
considered the most common solution. The public often turns to governments to pass and enact legislation
and regulation to curb the negative effects of externalities. Several examples include environmental
regulations or health-related legislation
Public Goods
Public goods are items the public needs but that the market does not find profitable enough to
produce. Examples include roads, streetlights, park benches, flood prevention systems and libraries. The
government tends to subsidize or pay for public goods. If your business provides products or services that
contribute to public goods, you will profit from the market inefficiency produced by having only one customer-
the government.
Examples of Market Inefficiency by Kevin Johnston
Warren Buffet said, "I'd be a bum on the street with a tin cup if the markets were efficient." What
he means is that he seeks underpriced stocks-ones that are worth more than the market thinks they are.
Market inefficiency doesn't apply only to stocks. If you become adept at recognizing inefficiencies in the
marketplace, you can position your business to take advantage of those inefficiencies and prosper.
Bargain Prices
When the marketplace does not take all factors affecting price into account, the result is
underpriced goods. This can work in your favor if you purchase raw materials or supplies for your business,
and the seller does not price them as high as he could. However, if the market undervalues the goods you sell,
you can find that you can't set high enough prices to cover your expenses and provide a profit.
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Inflated Prices
The market can overvalue goods. This can result in high prices for items you purchase for your
business. It can, on the other hand, work in your favor if the market places a high value on the items you sell.
You see this sort of phenomenon around the holidays, when certain toys command high prices because they
are part of a craze. When everyone has to have it, your product can soar in price. This market inefficiency will
not last forever. As demand ebbs, the market will assign a new value to your products.
Monopoly
When one company has exclusive access to a product or market, that company can control prices
and distribution. This creates an inefficient market because normal market forces do not work to control
prices. If you have a monopoly product, you will find that in an efficient market, competitors will arise and you
will have to adjust your prices to market constraints. The temporary inefficiency that resulted from the
monopoly, however, can provide you with big profits.
Unclear Property Rights

When no one is sure who owns the rights to a product, inefficiencies develop. This has occurred in
the music industry, for example, where some consumers assume they have the right to free downloads of
music, and the creators of the music claim they own the rights. The lack of clarity creates an inefficient market,
where prices can go as low as zero.
What is market efficiency?

Definitions of market efficiency have to be specific not only about the market that is being
considered but also the investor group that is covered. It is extremely unlikely that all markets are efficient to
all investors, but it is entirely possible that a particular market (for instance, the New York Stock Exchange) is
efficient with respect to the average investor. It is also possible that some markets are efficient while others
are not, and that a market is efficient with respect to some investors and not to others. This is a direct
consequence of differential tax rates and transactions costs, which confer advantages on some investors
relative to others.
Definitions of market efficiency are also linked up with assumptions about what information is
available to investors and reflected in the price. For instance, a strict definition of market efficiency that
assumes that all information, public as well as private, is reflected in market prices would imply that even
investors with precise inside information will be unable to beat the market. One of the earliest classifications
of levels of market efficiency was provided by Fama (1971), who argued that markets could be efficient at
three levels, based upon what information was reflected in prices. Under weak form efficiency, the current
price reflects the information contained in all past prices, suggesting that charts and technical analyses that
use past prices alone would not be useful in finding under-valued stocks. Under semi-strong form efficiency,
the current price reflects the information contained not only in past prices but all public information (including
financial statements and news reports) and no approach that was predicated on using and massaging this
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information would be useful in finding under-valued stocks. Under strong form efficiency, the current price
reflects all information, public as well as private, and no investors will be able to consistently find undervalued
stocks.
What is an efficient market?

An efficient market is one where the market price is an unbiased estimate of the true value of
the investment. Implicit in this derivation are several key concepts -
(a) Contrary to popular view, market efficiency does not require that the market price be equal to true
value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can
be greater than or less than true value, as long as these deviations are random.
(b) The fact that the deviations from true value are random implies, in a rough sense, that there is an
equal chance that stocks are under or over valued at any point in time, and that these deviations are
uncorrelated with any observable variable. For instance, in an efficient market, stocks with lower PE ratios
should be no more or less likely to undervalue than stocks with high PE ratios.
(c) If the deviations of market price from true value are random, it follows that no group of investors
should be able to consistently find under or overvalued stocks using any investment strategy.
Industrial Sector Sialkot, Pakistan.

The industrial sector of Pakistan has flourished greatly over the years. It can be rightly said that
every merchant of the industry has worked hard in bringing it to the position it is at today. Similarly, the
industrial sector of Sialkot has also prospered greatly. Not only has it gained the number 1 spot in
manufacturing quality products in the hand-sewn Football Industry but has also been named as the world's
largest centre of surgical instrument manufacturing. The market participants of Sialkot have always followed
the strict principles of the industrial norms and are well-known for their quality production as well as
successful imports and exports. There is a well-applied child labor ban, the Atlanta Agreement, in the industry
since a 1997 outcry and the local industry now funds the Independent Monitoring Association for Child Labour
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to regulate factories. The city's surgical instrument manufacturing industry benefits from a clustering effect, in
which larger manufacturers remain in close contact with smaller and specialized industries that can efficiently
perform contracted work. The industry is made up of a few hundred small and medium size enterprises,
supported by thousands of subcontractors, suppliers, and those providing other ancillary services. The bulk of
exports are destined for the United States and European Union.
Sialkot first became a centre for sporting goods manufacturing during the colonial era. Enterprises
were initially established for the recreation of British troops stationed along the North West Frontier. Nearby
timber reserves served to initially attract the industry to Sialkot. The city's Muslim craftsmen generally
manufactured the goods, while Sikh and Hindu merchants of the Sindhi Bania, Arora, and Punjabi Khatri castes
acted like middle men to bring goods to market. Sialkot now produces a wide array of sporting goods,
including footballs and hockey sticks.
Sialkot is also noted for its leather goods. Leather for footballs is sourced from nearby farms, while
Sialkot's leather workers craft some of Germany's most prized leather lederhosen trousers.
Sialkot is the proud owner and host to many industries which include:
 Surgical industry.
 Leather industry.
 Sports industry.
 Food industry.
 Cosmetics industry.
 Textile industry.
 Motor industry.
 Paint industry.
 Electrical appliances industry.
 Education industry.
 Metal and steel industry.
 Wood industry.
 Brick and cement manufacturing industry.
 Medical industry.
Leather Industry, Sialkot.
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Leather industry, including leather products, is the second largest export-earning sector after textiles.
Currently, this sector is contributing around $800 million a year but has the potential to multiply volume of
exports with the improvement of quality and diversification in different range of products, specially garments
and footwear. The exports are also carried out in un-tanned raw leather due to the quality and amount of
livestock available in Pakistan.
It is a job-oriented sector providing employment to a very large segment of the society besides
earning foreign exchange for the country. The leather finishing and made ups industries represent an
important sector in Pakistan, contributing almost more than half a billion US dollars in foreign exchange
earnings to the national exchequer. The leather industry consists of six sub-sectors namely, tanning, leather,
footwear, leather garments, leather gloves, leather shoe uppers, and leather Goods. The Tanning industry
plays a vital role in the progress of these sub-sectors by providing the basic material i.e. leather. Today,
Pakistanis are among the leading countries in the production of Leather Garments and Gloves. The leather and
leather made-ups industry plays a significant role in the economy of Pakistan and its share in GDP is 4%. Ten
years ago, it was the fifth most important export industry in the manufacturing sector, and now it is the
second.
At the time of independence there were only a few tanneries producing sole leather and that too at
a very small scale. However, since then this industry has been flourishing. During 1950s, some well-equipped
tanneries were set up at Karachi and Lahore, while during 60s and 70s more units were established at
Hyderabad Kasur, Sialkot, Multan, Sahiwal and Gujranwala. Starting with the production of picked and
vegetable tanned hides and skins, the tanneries, today, are producing not only wet blue and crust, but also
fully finished leather.
The entire production of hides and skins were being exported in a raw form. Thereafter the local
tanning industry making at first semi-finished leather made rapid progress due to favorable raw material
situation, cheap labor and the existence of growing demand and foreign market.
Sialkot city has the privilege of hosting an immensely flourishing leather industry. The leather market
of Sialkot is renowned all over the world and whenever there is a talk of quality leather products
manufacturing destinations, Sialkot is surely mentioned. The government as well as the private sector has put
in great hard work in bringing this industry to where it stands today.
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But, the truth is that, not always a 100% efficiency rate can be achieved. Especially in the industrial
sector. Not everyone may be benefitted and not everyone may face loss or a disadvantage. That is where
externalities step in. They determine the drawbacks as well as the advantages of this industry inside the city.
Of course, where people may suffer they may also receive some sort of advantages from this side.
Negative Externalities
 The release of effluents in the atmosphere around Marala Road such as arsenic, lead, mercury,
cadmium and zinc has caused problems for the pedestrians and residents.
 The consequences of discharge of such particles in the rivers results in contamination of water which
may be consumed by livestock thus damaging their health.
 Leather industry uses the skin of animals thus resulting in the deaths of many livestock which in turn
affects many, including the milk manufacturing companies, dairy product manufacturers, farmers etc.
 The air around Sialkot main city is heavy with smoke discharge from this industry thus resulting in
global warming and smog production which causes problems for the working-class of the city.
 Noise pollution from this industry causes a disturbance in the daily lives of the residents near the
factories. Noise pollution may be the cause of many illnesses including mental problems. Ugoki side is
heavily under the influence of noise pollution.
 Electricity consumption of tanneries is large. Due to the consumption of large amounts of electricity,
residents near the area may experience load-shedding or fluctuations which affects not only them, but
other factories too.
 By-products of zinc and other effluents are highly toxic, which when released in the waters completely
destroy it's usage for anyone else. This poses as a problem for other industries as well as the local
people of the city.
 Most of the tanneries are situated near the outskirts of the main city. This means that their sewage
system containing heavy toxins may seep out to the farms nearby thus destroying the crops and fields.
This greatly effects the farmers and land owners who have half of their land rendered useless because
of this toxic water leakage.
 A leather factory requires huge amount of space. Hence, its large space consumption causes problems
for people in the surrounding area.
 Machinery noise may cause noise pollution. Noise pollution is hazardous to the human health and
brain.
 Some leather factories do not follow the “child-labor” ban. This allows them to recruit children for the
processing, stitching, sewing and cutting of leather products thus promoting child abuse and causing
illiteracy to increase.
 Busy work hours and work burden increase results in the declining health of the people.
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 Smoke release from this industry is contributing to the climate change of the city. Sialkot has been
facing extreme climatic conditions since the past few years. This troubles the locals who have to face
such changing climate.
 The cost of leather-made products is very high in the shops of the city. Many people can’t afford to buy
such high-end, expensive things thus leaving a sense of incompetence among the locals.
 Leather is not prone to weather change. During the summers, it tends to become extremely hot
making the user feel uncomfortable while it tends to become extremely cold during the winters thus
restricting its use to only when the weather conditions are favorable.
 The areas surrounding leather tanneries have a great smell of dyes and other manufacturing processes
thus causing people to suffer allergies and other olfactory and sometimes, mental problems.
Positive Externalities
 The need of animal skin causes such industries to approach slaughter houses, thus increasing their
business.
 The purchase of chemicals such as chromium increases the sales of concerned labs thus benefitting the
owners of such companies.
 To achieve different processes inside the factory production area, the tannery needs employees in bulk
amount. Hence, job opportunities increase for the local people as many positions don't require high
qualifications.
 Some of the factories have a water-filter plant attached just outside their factories for water supply.
This also benefits some surrounding people and even birds, as they are able to consume this water.
 The products of leather industry are very helpful to its purchasers as leather bags, gloves, jackets, etc.
are highly useful and durable products.
 Green leather factories are not only beneficial to the environment but they also produce good leather,
usable by the local people.
 The usage of threads and needles for stitching purposes increases the sale of small companies
producing such equipment.
 Many factories observe the “child-labor ban” hence indirectly promoting child care and boosting the
literacy rate of the city by not hiring young children and increasing business of schools, colleges and
universities.
 Leather industry of Sialkot contributes heavily to the economy of Pakistan hence enabling the
government to set up projects benefitting many citizens.
The leather industry has a lot of externalities whether positive or negative. But a leather factory,
which is not a green leather factory or an environment-friendly leather factory, may have more negative
externalities than positive ones. And in Sialkot, it has been observed that most tanneries are not environment
friendly at all.
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Sports Industry, Sialkot.
Sialkot boasts of a highly famous, renowned and famed Sports Sector. Not only nationwide, but it is
known for its production of high quality sports goods worldwide. The FIFA Championship has given the honor
of using hand-sewn footballs of this very industry. This has enabled people to realize the high quality
production and hard work of the people of Sialkot. The sports goods produced by the factories of Sialkot are
extremely durable and smooth hence ensuring long periods of usage along with class and sophistication. This
industry is also highly important for the economy of the country as it also contributes to the GDP greatly.
Sialkot sports industry has been producing sporting goods for over a decade and is one of the
industries through which Pakistan has gained global recognition. The industry initially commenced with
production of sporting goods involving wood e.g. cricket bats, hockey sticks, tennis, badminton rackets etc.
Over the years and influx of modern equipment, the Sialkot sports industry is now able to manufacture any
product and in any material. The industry has produced for renowned global brands such as Adidas, Nike,
Puma, Select, Lotto, Wilson, Micassa etc. It is estimated that there are approximately 2,000 units operating in
Sialkot, most of which can be classified under SME. Few and larger units are known for soccer balls. Pakistan
made a name for itself by producing the most advance soccer ball for the FIFA World Cup of 2014.
Pakistani soccer balls other than FIFA are being used in various leagues in Europe. The Brazzuca has
been honored as the most advance ball ever made for any world cup event. Pakistan has been recognized for
quality of raw material and finishing of the products which remain in high export demand throughout the year.
Pakistan alone caters to 70 percent of global supply of soccer balls which is estimated to bring in US$210
million to US$250 million each year. Pakistan has used this as an advantage and produces sporting textiles
which include trousers, sweat shirts, gloves, track suits, karate kits, stockings, pajamas, casual wear etc. The
garment industry of Sialkot alone pulls US $100 million each year in terms of exports. Sports exports from
Sialkot alone are estimated at US$450 million each year.
At the face, the sports industry of Sialkot may be recognized, there are pitfalls which must be
highlighted and where the government needs to function in order to further improve of the export potential.
The road infrastructure in Sialkot is poor and there are no proper road ways or links to enable heavy traffic.
Sialkot city is often choked where traffic movement is further slowed due to poor infrastructure and road
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ways. The workforce in Sialkot is primarily either engaged in sports, leather goods or the medical industry.
There is hardly any focus on vocational training and people are expected to be employed and learn their skills
on the job. Most of the businesses in Sialkot operate through shops, homes, garages etc converted into
makeshift factories and are used by larger manufacturers for basic value addition at low cost. On such
complain from the SME sports sector to be incentivized to enable them by equipment and move to larger
premises for capacity enhancement, unfortunately such financing is hard to come by.
Negative Externalities
 Just like the leather industry, sports factories too release smoke in the atmosphere thus contributing to
the severe climatic change.
 Sports factories use various plastics in their manufacturing processes which when disposed in the seas
cause harm to marine life.
 Exposure to chemicals that may be emitted during or after application of polyurethane spray
foam (such as isocyanates) are harmful to human health and may cause occupational asthma to the
employees dealing with it.
 The chemical polycarbonate, which is used in the production of stadium, has a chemical property of
being indisposable. Hence, when it does not decompose under aerobic conditions, it eventually finds
its way into the rivers and causes aquatic pollution. Marine life in the rivers of Sialkot city has been
found greatly damaged owing to these factors.
 The fumes from cyanoacrylate, a chemical used to make archery equipment, are a vaporized form of
the cyanoacrylate monomer that irritates the sensitive mucous membranes of the respiratory
tract (i.e., eyes, nose, throat, and lungs). They are immediately polymerized by the moisture in the
membranes and become inert. These risks can be minimized by using cyanoacrylate in well-ventilated
areas. About 5% of the population can become sensitized to cyanoacrylate fumes after repeated
exposure, resulting in flu-like symptoms. Locals living in the areas surrounding the factories releasing
this chemical in the environment often complain of such irritants. Even the employees dealing with
such chemicals must use precautions to protect themselves from this harmful reaction.
 Noise pollution is also quiet common in this industry. Mental health deterioration is highly possible in
the locals and the employees due to this factor.
 Sports can encourage a child to focus so intently on becoming a star that the child neglects other
essential areas of life.
 Sports offer the most common avenue to adolescent acclaim, a fleeting journey that will end soon —
and often abruptly.
 Sports can cause a child to fall into a pattern of rationalizing unacceptable behavior. A good example is
the athlete who becomes so competitive that he/she will do anything to win, convincing
himself/herself that the ends justify the means.
 A few sports foster a culture of violence. Such a misguided culture too often spills over into barbaric
acts in and out of competition, and also produces a copycat reaction among some impressionable
young athletes.
 Sports can produce an unhealthy level of stress in a child, particularly a child who is pushed to excel
and who feels a failure with every loss.
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 Sports can produce irrational, boorish behavior among parents and athletes.
 Sports can produce many athletes who are negative role models.
 Sports can produce many coaches who are negative role models.
 Sports can produce many parents who are negative role models, especially those who overvalue
athletic achievement.
 Sports, even team sports, can promote selfish behavior.
 Dreams of sports glory can induce some parents to completely lose perspective of the really important
things in their child’s life, especially that the athlete is a child.
 Sports can chip away at a child’s self-esteem. A child who falls short of athletic goals or who perceives
that one is valued only for athletic ability may lack a sense of value and self-worth off the field.
 The desire to win can lead some young athletes to turn to harmful, illegal substances.
 Sports can be so time-consuming that it leaves some athletes with little time for studies or social life.
 Sports can be a distraction from serious academic pursuit. At the highest level of intercollegiate
competition, colleges are producing magnificent athletes who, in many cases, are ill-equipped to
engage in any meaningful life’s work.
 From blaming referees for poor calls to listening to those who say, “You are being treated unfairly,”
sports can be a haven for excuses.
 Sports can allow many who are physically gifted to behave like arrogant bullies.
 Sports can allow many who are physically gifted to underestimate the real meaning of hard work.
 The link between sports stardom and arrested development is far too common.
 The “trample the opponent” philosophy espoused by some coaches and parents sends the wrong
message about the core value of empathy.
 When sports are more important to the parent than the child, it can create distance and resentment,
particularly when a child’s performance does not live up to parental hopes and expectations.
 Burnout or injuries from sports can lead to neglect of physical fitness.
 Finally, sports can teach a child that it is acceptable to cheat or take short cuts to win, especially if
coaches and parents turn a blind eye toward such practices. Gamesmanship tactics such as flopping in
basketball, when a defensive player fakes an offensive foul by falling to the floor, are frequently
encouraged by coaches and parents, and employed by young athletes. Acceptance of these tactics
fosters a belief that such behaviors are not only acceptable but admirable; to win at any cost is okay.
 Factories not observing the “child-labor ban” promote illiteracy and child abuse in the society.
Positive Externalities
 Brings people together, providing opportunities for social interaction.
 Empowers, inspires and motivates individuals.
 Keeps kids away from the TV or computer screen.
 Kids who participate learn better and are more likely to enjoy school.
 Improves mental health.
 Eases pressure on the health system.
 Contributes to social capital.
 Healthy workers are more productive and take less sick days.
 Creates positive alternatives to youth offending, antisocial behavior and crime.
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 Reduces pollution – promotes use of active modes of transport like walking and cycling.
 Provides a vehicle for inclusion, drawing together people of different races, religions and cultures.
 Creates opportunities for, and promotes, volunteering.
 Contributes to higher levels of self-esteem and self-worth.
 Helps to sustain the environment through protecting open space and natural areas.
 Sport and recreation clubs are the hub of community life, especially in the regions.
 Provides work/life balance.
 Binds families and communities through shared experiences.
 Helps shape our national character and pride.
 Creates employment opportunities.
 Promotes a healthy, active lifestyle.
 Develops life skills and leadership abilities.
 Provides a sense of belonging.
 Fosters community pride.
 Tones and strengthens the body.
 Economic growth through business investment, employment, major events and tourism.
 Contributes to lifelong learning.
 Great opportunities for networking.
 Reduces obesity.
 Can help to prevent cardiovascular disease, diabetes and some cancers.
 Needles and threads are needed to stitch and sew the footballs together hence purchase of these small
equipments increases the sale of companies selling these products.
The sports industry has many externalities, just like the other industries, but it can be noted that
sports provide a variety of opportunities to the people and promotes physical health greatly as well. Not only
businessmen but the local people of Sialkot are also heavily benefitting from the production of this industry.
Hence, it can be easily said that the sports sector contributes greatly to the welfare of the society.
Market Inefficiency/Market Failure

According to the definition, market failure occurs when the price of the good being sold is
not up to the quality that it boasts of. In other words, low quality goods being sold at high prices and high
quality goods being sold off at low prices sometimes depicts “market failure”.
In Sialkot city, the problem of market failure can be observed but it is not common. The
industry of Sialkot has always boasted of high quality products hence this condition was found uncommon
here. Also, the city being small with a still developing industry has proven that the market is yet to achieve a
high position within the market giants of the country. But, this problem is still observed in some industries
such as:
The Cosmetics Industry

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Most of the Sialkot market is retail. This means that selling and buying of the products is through
retail and not direct manufacturer-to-customer. In the cosmetics industry of Sialkot, many famous brands
including Rivaj, Luscious, Glow, Medora, Cover girl, Oriflame, Etude, L’Oreal, Maybelline, MAC Cosmetics
etc. have participated. As it is known, the prices of makeup have always been high. Whether it be these
signified international brands or local brands. Many retailers around the Cantt area are selling such makeup at
the same price as these brands but the quality is very low.
Some of these brands even include certain Chinese and Japanese brands. But the difference is
that not all Japanese brands boast of high price and low quality. Some shops such as Miniso, Pakistan (a
renowned Japanese retail store) are known for their high-end quality products. But even they sometimes end
up selling defected pieces without knowing too.
This type of problem has arisen in the products of renowned brands too. Such as:
 Sally Hansen Lip Inflation Plumping Treatment
 Rimmel London Recover Concealer
 N.Y.C. New York Color Liquid Lip Shine Lipgloss
 Wet n Wild MegaPlump Mascara
 L'Oreal Paris Micro Liner Ultra Fine Lining Pencil
 CoverGirl Outlast Double LipShine
 Revlon 3D Extreme Waterproof Mascara
 Rimmel London Colour Rush Duo Eyeshadow
 Wet n Wild Idol Eyes Retractable Eye Pencil
 Physicians Formula Retro Glow Ultra-Dramatic Mascara
Monopoly
The Monopoly is a market structure characterized by a single seller, selling the unique product with
the restriction for a new firm to enter the market. Simply, monopoly is a form of market where there is a
single seller selling a particular commodity for which there are no close substitutes.
A monopoly is a specific type of economic market structure. A monopoly exists when a specific
person or enterprise is the only supplier of a particular good. As a result, monopolies are characterized by a
lack of competition within the market producing a good or service.
A monopoly market is characterized by the profit maximization, price maker, high barriers to entry,
single seller, and price discrimination.
Features of Monopoly Market
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1. Under monopoly, the firm has full control over the supply of a product. The elasticity of demand is zero for
the products.
2. There is a single seller or a producer of a particular product, and there is no difference between the firm
and the industry. The firm is itself an industry.
3. The firms can influence the price of a product and hence, these are price makers, not the price takers.
4. There are barriers for the new entrants.
5. The firm can earn more profits only by increasing the sales which are possible by decreasing the price of a
product.
6. There are no close substitutes for a monopolist’s product.
Under a monopoly market, new firms cannot enter the market freely due to any of the reasons such as
Government license and regulations, huge capital requirement, complex technology and economies of scale.
These economic barriers restrict the entry of new firms.
Monopoly in Sialkot
Monopoly within the market of Sialkot was hard to find as every product had at least two to three
companies manufacturing it. But two products had only one manufacturer and those were electricity and Sui
gas. Electricity has always been supplied throughout the city and its surrounding areas by WAPDA only. This
gives WAPDA the power to set the prices of the product whenever and however they like. People still need to
use it as it is a necessity of life. Sui gas is supplied by the Sui Northern Gas Pipelines Regional Office Sialkot,
giving the authorities power and control over the Sui gas prices. Both have no visible substitutes within the
market.
Microeconomics
Monopolistic Competition
Monopolistic competition is a type of imperfect competition such that many producers sell products
that are differentiated from one another and hence are not perfect substitutes. In monopolistic competition, a
firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of
other firms.
Monopolistic competition is a market structure which combines elements of monopoly and
competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but
firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set
prices. However, because there is freedom of entry, supernormal profits will encourage more firms to enter
the market leading to normal profits in the long term.
A monopolistic competitive industry has the following features:
 Many firms.
 Freedom of entry and exit.
 Firms produce differentiated products.
 Firms have price inelastic demand; they are price makers because the good is highly differentiated
 Firms make normal profits in the long run but could make supernormal profits in the short term
 Firms are allocatively and productively inefficient.
Features of Monopolistic Competition
Monopolistic Competition in Sialkot
Microeconomics
Monopolistic Competition in Sialkot is quiet common. While every item is sold by almost all shops,
people still have their own preferences. In the retail industry, this is not only in Sialkot but is happening
nationwide. For example:
 Rufial Industries is a well-known and preferred brand in the Sports market.

 Vellum Head Company is highly successful among the musical instruments manufacturer market.
 Classic School System is the top school in the private education sector.
 ECS is the leading market giant in the shoes industry with notable competitors Clive and Hush Puppies.
 Services Club is also the most prominent for outdoor activities and various participations.
 Second Cup also has dominance over all the coffee shops around the city.
 Baker’s Inn is also the most prominent in the bakery sector, with them having only one branch in the
city with utmost demand, although they may be facing tough competition by Gourmet and Bake
Master.
 Pehchaan Store has superiority over all other utility stores in the city though middle class people may
target it more than the lower class.
 Atlas Honda also has dominance over all other bike selling showrooms in the city though Yamaha may
still be a tough competition.
 Servaid Pharmacy also has prominence over other pharmaceutical stores around the city.
There is a tough competition among the market giants of the city as everyone wants the best product. The
retail industry experiences a tough competition while most of the actual productions of the city are being
exported. Still, monopoly and market inefficiency has been observed in this still developing city too.
Public Goods
Public goods are goods that can be consumed simultaneously by a large number of people without the
consumption by one imposing an opportunity cost on others, what is termed nonrival consumption. They are
further characterized by the inability to exclude nonpayers from consumption. Nonrival consumption means
that public goods are efficiently allocated if provided at a zero price, something markets are seldom inclined to
do. Moreover, the inability to exclude nonpayers gives rise to the free-rider problem, which further inhibits
the voluntary exchange of public goods through markets.
If markets do attempt the voluntary exchange of public goods, which results in a nonzero market price,
then efficiency is not achieved. A nonzero market price means there is no equality between the value of goods
produced and the value, or opportunity cost, of goods not produced, which is zero due to nonrival
consumption.
Common examples of public goods include national defense, public health and environmental quality.
In each case consumption by one does not impose an opportunity cost on others and nonpayers cannot be
excluded from consumption. And in each case, markets fail to efficiently allocate the production,
consumption, or provision.
Microeconomics
Closely related to public goods are near-public goods and common-property goods that share one but
not both of the key characteristics of non-rival consumption or the inability to exclude non-payers.
 Private goods: Private goods are excludable and rival. Examples of private goods include food, clothes,
and flowers. There are usually limited quantities of these goods, and owners or sellers can prevent
other individuals from enjoying their benefits. Because of their relative scarcity, many private goods
are exchanged for payment.
 Common goods: Common goods are non-excludable and rival. Because of these traits, common goods
are easily over-consumed, leading to a phenomenon called “tragedy of the commons.” In this situation,
people withdraw resources to secure short-term gains without regard for the long-term consequences.
A classic example of a common good are fish stocks in international waters. No one is excluded from
fishing, but as people withdraw fish without limits being imposed, the stocks for later fishermen are
depleted.
 Club goods: Club goods are excludable but non-rival. This type of good often requires a “membership”
payment in order to enjoy the benefits of the goods. Non-payers can be prevented from access to the
goods. Cable television is a classic example. It requires a monthly fee, but is non-rival after the
payment.
 Public goods: Public goods are non-excludable and non-rival. Individuals cannot be effectively excluded
from using them, and use by one individual does not reduce the good’s availability to others. Examples
of public goods include the air we breathe, public parks, and street lights. Public goods may give rise to
the “free rider problem.” A free-rider is a person who receives the benefit of a good without paying for
it. This may lead to the under-provision of certain goods or services.
In Sialkot (Public Goods)

 Benches have been made around the roads of the city, mainly in the Cantt Area and on the
road sides of Aziz Shaheed Road.
 Street lights have also been made on the two-way roads.
 A huge screen for advertisement purposes have been built at the front of KFC Restaurant.
 Shades have also been provided to accommodate people during the rain.
 Parks have been made along the road sides and inside the Cantt Area, free of cost.
 Playgrounds are also free of cost for training purposes and for youngsters to exercise sports.
 Mosques are also public goods, free for the society.
 Pak Army has been defending the local people ever since the creation of Pakistan. This defense
is for everyone and everyone utilizes it, knowingly or without knowledge.
 Water fountains inside the parks and on the food street in 8-Div and one in front of the market
in 15-Div are also for the public’s amusement, cost-free.
Microeconomics
In Sialkot (Club goods)
 Cable TV
 Gyms across the city
 Services club also offers a temporary as well as permanent membership to the people.
In Sialkot (Common goods)
 The road system

 Public parks
 Police protection and public safety
 Courts and the judicial system
 Public schools
 Public transportation
 Civil liberties, such as the freedom of speech and the freedom
In Sialkot (Private goods)
A private good is defined as an asset that is both excludable and rivalrous. It is excludable in
that it is possible to exercise private property rights over it, preventing those who have not paid from
using the good or consuming its benefits.
 Clothes
 Houses
 Personal belongings
 Food
 Your business name
Microeconomics
Conclusion
Market inefficiency and externalities are phenomenas that are observed in all the markets.
Whether it is retail or manufacturing or export or import, everything has its own pros and cons. This is why
economists study the different aspects of an industrial market in order to closely examine and determine the
pros and cons of the market that lives in our city. Determining market inefficiencies also helps to improve the
overall working of the industrial sector and also contributes to people trying to correct the mistakes they have
made. Pakistan’s industrial sector needs high levels of improvement in order to attain equality and
competition with the industries of international level. For this purpose, economists must run full observatory
tests on the current market outcomes and point out the things that need to be corrected.
With the increasing inflation and weakening of the economy, such professionals put in their hard
work in order to support the system. Such tasks are the “backbone” of the industry as it always prospers in the
light of observations.
It is hard for any country to make any sorts of progress until or unless its economy overcomes all
of the problems, mainly the inefficiency or market failure.
Microeconomics

Microeconomics Externalities

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Microeconomics Externalities

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What Is an Externality?

An externality is an economic term referring to a cost or benefit incurred or received by a third

Unclear Property Rights

What is market efficiency?

What is an efficient market?

Industrial Sector Sialkot, Pakistan.

Leather Industry, Sialkot.

Market Inefficiency/Market Failure

The Cosmetics Industry

Features of Monopoly Market

Features of Monopolistic Competition

Monopolistic Competition in Sialkot

 Rufial Industries is a well-known and preferred brand in the Sports market.

In Sialkot (Public Goods)

 The road system

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