1、and Gover nmentINSTRUCTIONAOBJECTIVESThe main objective of this chapter is to develop the con cept of efficie ncy and show stude nts how it is used to evaluate econo mic performa nee. To beg in the discussi on, it is n ecessary to draw the dist in cti on betwee n positive and no rmative econo mics.
2、Both of these approaches are used in the chapter. An additional instructional objective is therefore to dem on strate the usef uln ess of each type of an alysis.The concept of efficiency is carefully linked to resource allocation and econo mic tran sacti ons. The chapter also in troduces the stude n
3、t to marginal analysis of resource allocation. The distinction between total social cost and ben efit, and marginal social cost and ben efit is draw n for students. Graphic analysis is then used to derive the marginal conditions for efficiency. The objective is to show students that maximization of
4、net social ben efit requires that all activities be un dertake n in each time period up to the poi nt at which MSB = MSC.The analysis is then used to evaluate resource allocation in competitive markets operati ng un der con diti ons of perfect competiti on with no exter nalities. This is followed by
5、 examples show ing how mon opoly power and gover nment in terve ntio n can result in losses in efficiency in markets. The objective here is to show how welfare triangles can be used to measure losses in well-being when efficiency is not achieved.The equity-efficiency tradeoff is also introduced in t
6、he chapter. The utility possibility curve is used to show students how citizens often rationally oppose movements to efficient resource use when compensation for losses in well-being is not actually paid. Positive analysis of the equity-efficiency tradeoff is also provided, thereby closing the chapt
7、er with an illustration of how the positive approach is useful to normative analysis.CHANGES INTHISEDITIONThis chapter has been updated where needed. Otherwise, there have been no changes in this core theory chapter. A new problem was added to the end of the chapter.CHAPTEROUTLINEPositive and Normat
8、ive EconomicsNormative Evaluation of Resource Use: The Efficiency CriterionMarginal Conditions for EfficiencyMarkets, Prices, and Efficiency ConditionsWhen Does Market Interaction Fail to Achieve Efficiency Monopolistic PowerHow Taxes Can Cause Losses in Efficiency in Competitive Markets Public Poli
9、cy Perspective: The Tax System and the Birth Rate An Example of Positive Economic AnalysisHow Government Subsidies Can Cause Losses in Efficiency Market Failure: A Preview of the Basis for Government Activity Equity versus EfficiencyThe Tradeoff between Efficiency and Equity: A Graphic AnalysisThe T
10、radeoff between Equity and Efficiency in a System of Competitive MarketsPositive Analysis Tradeoff Between Equity and EfficiencyInternational View: Agricultural Subsidies, International Trade Restrictions, and Global EfficiencyM AJORPOINTS ANDLECTURESUGGESTIONS1.Instructors may wish to emphasize the
11、 difference between the normative and positive approaches. The normative approach is based on underlying values that embody an individualistic ethic. The positive approach is simply a scientific method used to formulate hypotheses subject to empirical verification. I point out to my students that th
12、e normative approach in public finance sets up benchmarks against which the impact of government regulations, expenditures, and taxes can be evaluated.2.There are two aspects of efficiency that are useful to emphasize in lectures:a. Efficiency, as the term is commonly used by the layperson, simply m
13、eans avoidance of waste in achieving any useful objective. Students are most likely already familiar with this aspect of efficiency.b. The second aspect of efficiency deals with exchange. Even when production is accomplished without waste, additional net gains are usually possible through mutually a
14、greeable exchanges.In discussing the second aspect of efficiency, with which students are less familiar, you can point out that freedom to trade is an important aspect of efficiency. Constraints on mutually agreeable trade thereby prevent attainment of efficiency when no third parties are affected b
15、y those transactions.3.The derivation of the marginal conditions for efficiency provides a good opportunity to review marginal analysis for students. Make sure to confine your discussion to a particular good. The example in the text uses bread. I find that students are quite receptive to the notion
16、that net social gains are maximized when each possible good or service is made available up to the point at which MSB = MSC. The inclusion of the total social benefit and total social cost curves in Figure 2.1 in the text helps students see how additional production of goods is inefficient beyond the point at which MSB = MSC, even though TSB TSC for additional output.4.Notice how the margi
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