Concept of efficiency, Microeconomics

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.

 

Posted Date: 7/19/2012 3:18:19 AM | Location : United States







Related Discussions:- Concept of efficiency, Assignment Help, Ask Question on Concept of efficiency, Get Answer, Expert's Help, Concept of efficiency Discussions

Write discussion on Concept of efficiency
Your posts are moderated
Related Questions
so this question asks for the deadweight loss if an institution decided to provide this service free of charge. I was wondering if this will achieve the socially efficent level or

Theories and Models ?? Microeconomic Analysis             – Theories are taken in use to describe the observed phenomena in terms of a set of essential  rules and


explain the fundamental task of economic system usin tomatoes as an example

Determine the oldest ideas in economics One of the oldest ideas in economics is that increases in technology certainly run into natural resource scarcity and so lead to increas

Define Disposable Incomeand dumping Disposable Income :  The amount of income left after as deductions as income tax, pension contributions and national insurance. More genera

Consumer Choice   * Consumers choose a combination of goods which will maximize satisfaction they can attain, given the some degree of budget available to them. * The maximiz

what is The most important source of oligopoly?

use the concept of the income elasticity of demand to explain the difference necessities, luxuries and inferior goods

Suppose you have 10 individuals with values {$1, $2, $3, $4, $5, $6, $7, $8, $9, $10}.  Your marginal cost of production is $2.50.  What is the profit-maximizing price?  Using this