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1、Chapter Two|Efficiency, Markets, and Government|11CHAPTER 2Efficiency, Markets,and GovernmentInstructional ObjectivesThe main objective of this chapter is to develop the concept of efficiency and show students how it is used to evaluate economic performance. To begin the discussion, it is necessary
2、to draw the distinction between positive and normative economics. Both of these approaches are used in the chapter. An additional instructional objective is therefore to demonstrate the usefulness of each type of analysis.The concept of efficiency is carefully linked to resource allocation and econo
3、mic transactions. The chapter also introduces the student to marginal analysis of resource allocation. The distinction between total social cost and benefit, and marginal social cost and benefit is drawn for students. Graphic analysis is then used to derive the marginal conditions for efficiency. Th
4、e objective is to show students that maximization of net social benefit requires that all activities be undertaken in each time period up to the point at which MSB = MSC.The analysis is then used to evaluate resource allocation in competitive markets operating under conditions of perfect competition
5、 with no externalities. This is followed by examples showing how monopoly power and government intervention 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-effici
6、ency tradeoff is also introduced in the 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 als
7、o provided, thereby closing the chapter with an illustration of how the positive approach is useful to normative analysis.Changes in This EditionThis 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 ch
8、apter.Chapter OutlinePositive and Normative 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 Effic
9、iency in Competitive MarketsPublic Policy Perspective: The Tax System and the Birth RateAn Example of Positive Economic AnalysisHow Government Subsidies Can Cause Losses in EfficiencyMarket Failure: A Preview of the Basis for Government ActivityEquity versus EfficiencyThe Tradeoff between Efficiency
10、 and Equity: A Graphic AnalysisThe Tradeoff between Equity and Efficiency in a System of Competitive MarketsPositive Analysis Tradeoff Between Equity and EfficiencyInternational View: Agricultural Subsidies, International Trade Restrictions, and Global EfficiencyMajor Points and Lecture Suggestions1
11、.Instructors may wish to emphasize the 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 verificati
12、on. I point out to my students that the 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 com
13、monly used by the layperson, simply means 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
14、 usually possible through mutually agreeable 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
15、when no third parties are affected by 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 student
16、s are quite receptive to the notion 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.No
