Introduction to the Economics of Language and Language Policy

1
Introduction to the Economics of Language and
Language Policy
2
Why should economists care about endangered
languages?

• Because non-economists care!
• Language preservation is an economic good.

3
What is an economic good?

• Anything from which people receive enjoyment (or
  satisfaction, or happiness, or utility).
• Can be defined very broadly. Examples
• Groceries, bicycles, books, DVDs
• Medical care, auto repair, concerts, movies
• A walk on the beach, a picnic in the park
• Wilderness preservation, world peace, your
  mothers love . . .

4
How can we conceptually define and empirically
measure the value of something?

• Only indirectly, by observing what people are
  willing to give up for it.
• If a person chooses some action A over another
  alternative B, we can infer that, at this
  particular point in time, this person values A
  more highly than B.

5
Implicit assumption People are rational

• Translation People are more likely to choose
  actions that make them better off, than to choose
  actions that make them worse off.

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Important points

• This is not an ethical justification of greed
  or self-interestonly an observed empirical
  generalization.
• This does not exclude the possibility of
  altruistic behavior.
• If people care about (derive utility from) the
  welfare of others (or of other species), then
  they might behave altruistically.
• BUT This implies that people will be more
  likely to behave in socially responsible ways if
  the cost to them is lower, or if the benefits are
  higher.
• In short, incentives matter!

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What is the cost of some action?

• Q Whats the real cost of a movie ticket?
• A What you have to give up to get it
• The enjoyment (or value) of the next best
  alternative that you have to give up.
• This is referred to as opportunity cost.

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So well chose A over next-best alternative B
if

• The value of A gt the value of B
• or
• The value of A gt the (opportunity) cost of A

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Normative implication

• In any voluntary exchange, each party gains
  something that he or she values more highly than
  what is given up.
• Hence, voluntary exchange potentially makes both
  parties better off.
• This is the idea underlying economic efficiency.

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Positive (objective) question

• How do the millions of choices made by people
  every day get coordinated?
• (How do we allocate or assign scarce resources
  to the production of various goods and services?)
• Markets
• Facilitate exchange of private goods.
• Coordinate the plans of buyers and sellers by
  determining a price at which both are willing to
  exchange some quantity of some good.

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An individuals demand curve for some good
describes

• the quantity that the person would plan to buy at
  various prices or
• the price that the individual would be willing to
  pay for one more unit (reflecting the additional,
  or marginal, benefit or utility that would be
  received).

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P
20
18
Demand
marginal benefit (MB)
16
14
(Declines due to diminishing marginal utility,
so quantity demanded generally increases as price
falls.)
12
10
8
6
4
2
Q
10
1
2
4
3
6
7
8
9
5
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Market demand

• To get the market demand curve, we add the
  quantities demanded by all individuals at each
  price.
• With 1,000 consumers in the market, the market
  demand curve might look like this

14
P
The demand curve assumes that other variables
that affect consumers decisions (tastes, income,
prices of other goods, etc.) dont change.
20
18
16
If any of these factors change, the demand curve
shifts . . .
14
12
10
8
D ( MB)
6
4
2
Q (1000s)
10
1
2
4
3
6
7
8
9
5
15
P
Suppose a substitute becomes more expensive
20
18
16
14
At any given price, demand for this good will
increase.
12
10
8
6
4
D1
D2
2
Q
10
1
2
4
3
6
7
8
9
5
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Similarly, the supply curve describes

• the amount that producers or sellers would be
  willing to sell at various prices or
• the price necessary to get producers to supply
  various quantities.
• This depends on their costs.

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The supply of blackberries
Get back there in the thick of it where the
really good ones are
Cost (time, lacerations, clothing stains, etc.)
Pick the easy ones by the roadside
Go for the fat ones up high that most people
cant reach
Q (lbs. picked per day)
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Supply (continued)

• As production increases, marginal cost generally
  increases due to diminishing returns. So
• Producers will expand output as long as P gt MC.
• So the upward-sloping MC curve determines the
  quantity that producers will supply at any given
  price.
• The supply curve reflects the production
  technology and the costs (values) of resources
  used in production.

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Market equilibrium

• An equilibrium price is one that reconciles or
  coordinates the plans of buyers and sellers
• Quantity demanded Quantity supplied
• In equilibrium, there are no shortages and no
  surpluses.

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Market equilibrium
P
S ( MC)
P
D ( MB)
Q
Q
21
Any temporary deviation from equilibrium will
tend to be self-correcting
P
surplus
S
P
Faced with a surplus, producers cut price to
unload inventory (which is costly to hold!)
D
Q
QD
QS
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Changes in any of the variables that affect
demand or supply (other than price) will shift
demand or supply, leading to a new equilibrium.
S2
P
S1
P2
Suppose the cost of an input (labor, machinery,
raw materials, etc.) increases.
P1
D
Q
Q1
Q2
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Normative implication Economic Efficiency

• Economic efficiency means choosing the level of
  production and consumption of each good so as to
  maximize net social benefit (the difference
  between total benefit and total cost).
• Production should be increased as long as the
  value of producing one more unit exceeds the
  value of the next best alternative use of the
  resourcesthat is, as long as
• MB gt MC

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Efficiency Where MB MC
P
MC ( S)
Note This concides with the market equilibrium
solution!
Pefficient
MB ( D)
Q
Qefficient
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Conclusion

• By facilitating mutually beneficial trades,
  competitive markets result in economic
  efficiency, or maximum net social benefit.
• That is, under certain conditions . . .

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Some qualifications (roles for government
intervention)

• This assumes that markets are competitive (many
  buyers and sellers, each too small to affect the
  market price).
• A monopolist (single seller) would generally
  produce less than the efficient amount and charge
  a price that is inefficiently too high, reducing
  net social benefit.
• BUT There are cases in which monopoly results
  in positive net benefits, which is why they are
  sometimes both allowed and encouraged through
  government-granted licenses or patents.

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Other sources of inefficiencyExternalities

• External costs are costs imposed on third
  parties, external to a market transaction.
• The marginal social cost (MCsocial) exceeds the
  marginal private cost (MCprivate) at each level
  of output.

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External costs
MCsocial
P
S MCprivate
Pefficient MCsocial
External cost per unit of output
Pmarket
Policy implication Internalize the
externality (tax or emission charge)
D MB
Q
Qmarket
Qefficient
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External costs (continued)

• In this case the market produces inefficiently
  too much, at a price that is inefficiently too
  low.
• Producers and consumers do not bear the full
  marginal cost of their decisions.
• The most efficient policy is to internalize the
  externality
• Impose a tax (or emission charge) so as to force
  consumers and producers to face the full marginal
  cost of their actions.
• Bottom line Efficiency requires that prices
  reflect full social marginal costs.

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External benefits

• External benefits are benefits that accrue to
  third parties, for which no compensation is made
  to the producer.
• The demand curve (which reflects marginal private
  benefits, MBprivate) understates the marginal
  social benefit (MBsocial), and
• The market produces inefficiently too little.
• Policy Subsidize either
• consumers (shifting demand), or
• producers (shifting supply).

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External benefits
P
S MCsocial
Pmarket
MBsocial
D MBprivate
Q
Qmarket
Qefficient
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Public goods

• A public good has two characteristics
• Nonexcludability
• Once a public good is provided, no one can be
  excluded from enjoying its benefits, regardless
  of whether they pay for its provision.
• Examples public television radio, national
  defense, city streets, wilderness.
• Nonrival consumption
• One persons enjoyment of a public good does not
  diminish anyone elses enjoyment of the good.
  Everyone gets the same quantity.
• Examples PBS, NPR, national defense,
  uncongested city streets or wilderness areas.

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Implications of nonexcludability

• Individuals will have an incentive to free ride
  on the contributions of others.
• Therefore, voluntary contributions will not be
  sufficient to provide the efficient quantity of a
  public good, and
• private firms will be unable to recover the costs
  of providing the efficient quantity so
• there is a role for government provision of such
  goods.

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Implications of nonrival consumption

• The marginal cost of serving one more person is
  zero.
• Therefore, the efficient price is zero so
• public goods should be provided out of general
  tax revenues rather than by user fees.

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Conclusions

• Markets do some things pretty wellespecially
  coordinating private decisions in competitive
  markets where there are no externalities.
• Markets dont deal well with externalities and
  public goods.
• What are the implications for choices people make
  regarding language use, and for the survival of
  endangered languages?