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
LINKAGES OF BUREAUCRACY WITH THE KNOWLEDGE CENTRES: The Government employees must make use of knowledge generated in higher seats of learning for implementing economic policie


What are the main weaknesses of using demand-side policies? Trade-off issues a) Growth and low unemployment often come with inflation b) Government stimulatory policies m

#question.suppose the # of producers of electric cars increases causing the supply curve to shift to the right. If the demand curve stays stationary what will happen to the produce

A firms total cost function is TC=0.0006*X^3-0.086*X^2+4.8*X+25 and its total revenue function is TR=2.5*X find its profit function

why can methane not be prepared by this reaction

International trade: International trade refers to the exchange of goods and services between countries. Goods sold to other countries are referred to as exports and goods bou

given that a=(4;2) and b=(5;11)determine the value of x in the following equation b=3x-1/2a

why is international trade important for south africa

under which market structure does the banking sector fall?