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

Endowendowment, How to solve questions of endowments?

How to solve questions of endowments?

Firms in a competitive markets, illustrate a long-run equilbrium using diag...

illustrate a long-run equilbrium using diagrams for the gold market and for a representative gold mine

Explain the relationship between money supply and inflation, Problem 1: ...

Problem 1: a. Describe the term ‘inflation' and explain the relationship between money supply and inflation. b. Describe the conditions and processes that are associated wi

1, a) Consider the following flows (in thousand of people) between the vari...

a) Consider the following flows (in thousand of people) between the various labour market states in a particular month: UE = 240 000; UNLF = 180 000; EU = 190 000; NLFU = 220 000

3rd degree price discrimination(monopoly), What is third degree price discr...

What is third degree price discrimination? Explain with case analysis,give two successful & unsuccessful cases of 3rd degree price discrimination.

Introduction, How to start Economics Introduction assignment?

How to start Economics Introduction assignment?

Basic questions to be answered by economic institution, What are the basic ...

What are the basic questions to be answered by economic institution? Four fundamental questions should be answered by any economic institution as: a. What goods and services

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