Concept of efficiency, Microeconomics

Assignment Help:

The Concept of Efficiency is stated below:

To illustrate this concept of the efficiency, it is used to expand the understanding of what is meant by the Pareto-efficient allocation of economic resources. This is the situation in which it is not probable to move to other allocation which would make some people improved off and nobody worse off. In this context of the production possibilities frontier, then, points on the frontier are all Pareto-efficient, as it is not possible to move to the one more point (which means produce more of one good) without incurring some opportunity price (which means sacrificing the production of some other good).

Economists argue that the free-market perfect competitively for economy where P=MC automatically delivers most favourable allocation in the economy (Pareto-efficiency), so every government intervention (such as tax) which interferes with that the allocation generates efficiency losses. The efficiency (or the welfare) loss of the tax can be illustrated by an easy demand supply diagram. It can be seen that the loss in consumer and the producer surplus is much more than the revenue gain to government.

Does the above argument state that a tax can never be justified on the grounds of efficiency?

The answer to the question asked to us is No. There are major two cases in which imposing the tax might actually be better than not imposing it.

i. When there are market failures and the tax is imposed to bring the marginal social cost equal to the marginal social benefit.

ii. When there are existing distortions in economy and taxes are imposed to the spread distortion over various commodities rather than placing burden on just one commodity. An additional way to say the same thing is that: it is better to impose a little tax on a number of commodities to increase a certain amount of the government revenue, in spite impose one large tax on one or two commodities specifically.

 


Related Discussions:- Concept of efficiency

What are the main causes of unemployment, What are the main causes of unemp...

What are the main causes of unemployment? Two main paths are available; demand-deficient unemployment and real wage unemployment. After explaining unemployment (percentage o

Development banks, Development Banks Banks that function as coordinati...

Development Banks Banks that function as coordinating and intermediary industries to raise capital attract investment, and giving technical assistance for the economic develop

State the example of price and price level, State the example of price and ...

State the example of price and price level Create a basket which contains all the goods sold by a specific store on a specific day. Price of this basket is then a price level -

Supply and demand model, The vast majority of corn and soybeans produced in...

The vast majority of corn and soybeans produced in the United States is grown in the Midwestern states including: Nebraska, Iowa, Illinois, Indiana, and Ohio. This region experienc

Factors of production, Factors of Production Factors of production are ...

Factors of Production Factors of production are the resources that are utilized to manufacture goods and services: 1. Natural resources: The things developed by acts of n

Marginal utility, prove that marginal utility of x=the price of commodity ...

prove that marginal utility of x=the price of commodity x.

Demand and supply, (1) The demand curve for oranges is given by the equatio...

(1) The demand curve for oranges is given by the equation P = 5 – Q/200. The supply curve is given by P = Q/800. Q is measured in oranges per day and price is measured in dollars p

Market failure, causes of market failure and its solutions?

causes of market failure and its solutions?

Theory of inter-temporal consumption, THEORY OF INTER-TEMPORAL CONSUMPTION:...

THEORY OF INTER-TEMPORAL CONSUMPTION: In the previous two units, we have been concerned with choices among contemporaneous commodities. An important class of choices made by c

Characteristics of economic infrastructure, CHARACTERISTICS OF ECONOMIC INF...

CHARACTERISTICS OF ECONOMIC INFRASTRUCTURE: Natural monopoly is the situation where the provision of a good or a service has economies of scale, which are realised most when a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd