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

Rational expectations- inflation unemployment trade-off , Rational Expectat...

Rational Expectations- Inflation Unemployment Trade-off : Now, consider what happens if we suppose that workers have rational expectations about the rate of inflation First, th

Solve, 1. Suppose that Mr. John has the following Cobb-Douglas utility func...

1. Suppose that Mr. John has the following Cobb-Douglas utility function U = 6X^2/3y^1/3 the market price of X and Y commodity are $1 and $2, respe

Distributive bargaining, Distributive Bargaining An approach to negoti...

Distributive Bargaining An approach to negotiation that finds to divide up a fixed amount of resources.

Derive a demand function, Zac consumes only pizza and chianti. He consumes ...

Zac consumes only pizza and chianti. He consumes these goods in fixed proportions: 2 slices of pizza for one glass of chianti. His income is $100 per week. a. Derive demand func

The theory and estimation of cost, Write Equations Of Average Total Cost Va...

Write Equations Of Average Total Cost Variable Cost Marginal Cost, Economics Write equations for total cost, average total cost, variable cost, and marginal cost. The Central Pub

Law of cardinal utility approach, ??????? ??? ???? ??? # 100 ?????? #Minimu...

??????? ??? ???? ??? # 100 ?????? #Minimum ?????? ?????

Theory of second best, What is the theory of Second Best? Prove the theore...

What is the theory of Second Best? Prove the theorem with the help of a diagram.

Microeconomics and the market system, Suppose you are a painter, and the pr...

Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon t $3.50 a gallon. Your usage of paint drops from 35 gallons to 20 gallons a month. 1. Co

Transactions demand for money, Transactions demand for money: Transact...

Transactions demand for money: Transactions demand for money represents cash balances held by economic agents in order to carry outordinary everyday transactions.For example,

The theory of consumer behavior, explain the theory of consumer behavior f...

explain the theory of consumer behavior from the utility perspective

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