Question

Some state government Some State Governments around Australia have pursued policies to merge Local Government Councils. Explain the economic rationale for these policies, use cost curves and related evidence to support your arguments.

Please explain the cost curve diagram.

Answer 1

In Australia, various councils exist for varied reasons. Local government bodies perform regulatory tasks that are difficult for state governments as they might not have local reach. These tasks include inspections, planning and development approvals.

However, recently, the dissatisfaction with regards to local government sector has increased manifold. As the technology enhancements take place, state governments can take up the work of local bodies themselves and decrease costs substantially.

In the below graph, each local government council has a fixed cost of establishing, infrastructure, etc. Also, each has a variable costs of operations as well as maintenance, etc.

Now, when a state council merges with district council, it does away with certain fixed costs. Hence, total cost curve shifts downwards.