Lecture 11 Flashcards
The objective of social efficiency
Marginal social benefits and costs
MSB > MSC -> produce or consumer more
MSC > MSB produce or consume less
Socially efficient output where
MSB = MSC
CONCPET OF FAIRNESS
Market power
Lack of social efficiency
Consumer and producer surplus compared with
-consumer , producer and total surplus
Deadweight welfare loss under monopoly
-the effect of monopoly = on producer consumer and total surplus
Measuring dead weight welfare loss under
Which one of the following is a definition of deadweight welfare loss under monopoly?
The loss of total consumer plus producer surplus compared with perfect competition
Externalities
External costs of production
MSC > MC
External benefits of production
MSC < MC
External costs of consumption
MSB < MB
External benefits of consumption
MSB > MB
Taxes and subsidies - to correct externalities
Windfall taxes and per unit subsides
Taxes and subsidies adv/dis
Adv:
-can vary the rate according to the size of the market distortion
-long run incentives
Did:
-infeasible to use different tax and subsidy rates
-lack of knowledge
Regulatory bodies
Regulatory bodies for privatised utilities
-Ofgem, Ofwat
-competition and markets authority
Laws prohibiting behaviour that imposed external cost
Adv and dis of legal restrictions
Diff intervention
Price controls, provision of information and direct provision of goods and services
Social efficiency is achieved where
It is not possible to make anyone better off without making at least one other person worse off
Price control
High minimum prices and low maximum prices
If walkers are given the right to walk over other peoples land so long as they do not cause damage this approach to externalities would be called
Changing property rights
Dis of government intervention laizzez faire
Shortages and surpluses
Poor information
Bureaucracy and inefficiency
Lack of market incentives
Shifts in government policy
Voters ignorance
Unrepresentative government
Lack of freedom for the individual
In a perfect market, social efficiency in any activity wil be maximised where the activity is?
Marginal social benefit equals marginal social cost
Adv of free market in case of laissez faire
Automatic adjustment
Dynamic advantages of capitalism
High degree of competition even under monopoly/oligopoly
-possible market contestability
-competition from other closely related industries
-threat of competition from abroad
-countervailing powers
-competition for corporate control
