Download NPO, NGO, Different Market Forms for Different Situations

NPO, NGO, Different Market
Forms for Different Situations
NPO is a non profit organization that is either not required to or has
some other economic entity or agent cover its fixed costs.
NGO is a non government organization that either is not required to
or has another economic entity or agency cover its variable costs.
In many situations the same organization acts as an NPO in one
country and as an NGO in another and visa versa.
Analytically both agencies are able to operate and provide services
outside the expected level from a perfectly competitive market and
expand welfare by their presence in often difficult circumstances.
Non-Profit Organizations (NPO)
•
Fixed costs are covered by an external agency. Net Welfare Gain is A:B:C:D
ATC with AFC
MC with FC
Price
ATC without AFC
A
P Monopoly
P Perfect
Competitor
P NPO
B
Demand
C Monopoly
MR
C
Q Monopoly
D
Q NPO
Q Perfect
Competitor
Quantity
Non Government Organizations
(NGO)
•
Variable costs are covered by an external agency. Net Welfare Gain is A:B:C:D
ATC with AVC
MC with FC
Price
A
P Monopoly
P Perfect
Competitor
ATC without AVC
B
C Monopoly
P NGO
Demand
MR
C
Q Monopoly
Q Perfect
Competitor
D
Q NGO
Quantity
Analytic Observations
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•
•
•
•
•
The steeper (more elastic) is the demand curve the greater is the welfare improvement advantage
for an NGO over an NPO and the shallower (less elastic) the lesser is that advantage.
The NGO improves welfare over the perfect competitor because it is not bound by local input
controls for variable costs. Most NGO work with foreign volunteer labor as a prime variable cost
component that is not paid
The NPO is still bound by these costs and will make a welfare improvement to the local economy
usually only to the point at which its market price is greater than or equal to the variable costs for a
profit maximizing monopoly. The monopolist will usually exercise market power to control input
markets if it can and act as a monopsonist which pushes costs down as far as they can possibly
be.
Because governments tend to protect input markets NGO are usually unwelcomed and are active
only is cases of drastic events such as war, famine, floods, earthquakes, hurricanes, etc.
Because businesses tend to jealously guard market sources, NPO operations are usually
restricted to areas which are non competitive with the private sector.
Both NPO and NGO structures are atypical but can have a dramatic impact on local communities
and economies.