In the News
Supernormal profits - World’s 722 biggest companies ‘making $1tn in windfall profits’
This report by Oxfam and Action Aid highlights the concept of windfall profits. But what are they? And how large is the estimated level of windfall profits generated by the world's biggest companies?
In economic terms, we talk of normal and supernormal profit - with the latter being any profit above normal profit, that is profit over and above that consistent with the opportunity cost of resource use to produce a good or service. In short, it's earned in situations where firms have market power, and there are barriers to entry in a market, whereas in perfect competition only normal profit can be earned in the long-run. This is because if a firm earns supernormal profit in the short-run this will attract new entrants to the market to compete it away.
So in short, Oxfam and Action Aid are attacking firms able to earn supernormal profit. arguing that the supernormal profit generates returns for shareholders at the expense of consumers .
In other news, under-fire Governor of the Bank of England Andrew Bailey has weighed in on the debate about the extent to which businesses have been profiteering during the cost-of-living crisis.