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EFFICIENCY AND EQUITY

5. EFFICIENCY AND EQUITY. CHAPTER. Objectives. After studying this chapter, you will able to Define efficiency Distinguish between value and price and define consumer surplus Distinguish between cost and price and define producer surplus

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EFFICIENCY AND EQUITY

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  1. 5 EFFICIENCY AND EQUITY CHAPTER

  2. Objectives • After studying this chapter, you will able to • Define efficiency • Distinguish between value and price and define consumer surplus • Distinguish between cost and price and define producer surplus • Explain the conditions under which markets move resources to their highest-valued uses and the sources of inefficiency in our economy • Explain the main ideas about fairness and evaluate claims that markets result in unfair outcomes

  3. Self-Interest and the Social Interest • When you buy a pair of shoes or a textbook or fill your gas tank, or even just take a shower, you express your view about how scarce resources should be used. • You make choices that are in your self-interest. • Markets coordinate your choices with those of everyone else. • Do markets do a good job? • Do they enable our self-interest choices to be in the social interest? • And do markets produce a fair outcome?

  4. Efficiency and the Social Interest • Allocative efficiency is one aspect of the social interest and the aspect about which economists have most to say. • An efficient allocation of resources occurs when we produce the goods and services that people value most highly. • Resources are allocated efficiently when it is not possible to produce more of a good or service without giving up some other good or service that is valued more highly. • Efficiency is based on value, and people’s preferences determine value.

  5. Efficiency: A Refresher • Marginal Benefit • Marginal benefit is the benefit a person receives from consuming one more unit of a good or service. • We can measure the marginal benefit from a good or service by the dollar value of other goods and services that a person is willing to give up to get one more unit of it. • The concept of decreasing marginal benefit implies that as more of a good or service is consumed, its marginal benefit decreases.

  6. Efficiency: A Refresher • Figure 5.1 shows the decreasing marginal benefit from each additional slice of pizza, measured in dollars per slice.

  7. Efficiency: A Refresher • Marginal Cost • Marginal cost is the opportunity cost of producing one more unit of a good or service. The measure of marginal cost is the value of the best alternative forgone to obtain the last unit of the good. • We can measure the marginal cost of a good or service by the dollar value of other goods and services that a person is must give up to get one more unit of it. • The concept of increasing marginal cost implies that as more of a good or service is produced, its marginal cost increases.

  8. Efficiency: A Refresher • Figure 5.1 shows the increasing marginal cost of each additional slice of pizza, measured in dollars per slice.

  9. Efficiency: A Refresher • Efficiency and Inefficiency • If the marginal benefit from a good exceeds its marginal cost, producing and consuming more of the good uses resources more efficiently.

  10. Efficiency: A Refresher • If the marginal cost of a good exceeds its marginal benefit, producing and consuming less of the good uses resources more efficiently.

  11. Efficiency: A Refresher • If the marginal cost of a good equals its marginal benefit, resources are being use efficiently.

  12. Value, Price, and Consumer Surplus • Value, Willingness to Pay, and Demand • The value of one more unit of a good or service is its marginal benefit, which we can measure as maximum price that a person is willing to pay. • A demand curve for a good or service shows the quantity demanded at each price. • A demand curve also shows the maximum price that consumers are willing to pay at each quantity.

  13. Value, Price, and Consumer Surplus • Figure 5.2 shows these two ways of interpreting a demand curve. • In part a, shown here, the demand curve tells us the quantity that consumers plan to buy at a given price.

  14. Value, Price, and Consumer Surplus • In part b, shown here, the demand curve tells us the maximum price that consumers are willing to pay for a given quantity. • This price measures the marginal benefit of the good at that given quantity.

  15. Value, Price, and Consumer Surplus • Consumer Surplus • Consumer surplus is the value of a good minus the price paid for it, summed over the quantity bought. • It is measured by the area under the demand curve and above the price paid, up to the quantity bought. • Figure 5.3 on the next slide shows the consumer surplus for pizza for an individual consumer.

  16. Value, Price, and Consumer Surplus • The price paid is the market price, which is the same for each unit bought. • The quantity bought is determined by the demand curve and the blue rectangle shows the amount paid for pizza. • The green triangle shows the consumer surplus from pizza.

  17. Value, Price, and Consumer Surplus • The consumer surplus on the 10th slice is the $2 that the consumer is willing to pay minus the $1.50 that she does pay, which is 50 cents a slice.

  18. Cost, Price, and Producer Surplus • Cost, Minimum Supply-Price, and Supply • The cost of one more unit of a good or service is its marginal cost, which we can measure as minimum price that a firm is willing to accept. • A supply curve of a good or service shows the quantity supplied at each price. A supply curve also shows the minimum price that producers are willing to accept at each quantity.

  19. Cost, Price, and Producer Surplus • Figure 5.4 shows these two ways of interpreting a supply curve. • In part a, shown here, the supply curve tells us the quantity that producers plan to sell at a given price.

  20. Cost, Price, and Producer Surplus • In part b, shown here, the supply curve tells us the minimum price that producers are willing to accept for a given quantity. • This price measures the marginal cost of producing that given quantity of the good.

  21. Cost, Price, and Producer Surplus • Producer Surplus • Producer surplus is the price of a good minus the marginal cost of producing it, summed over the quantity sold. • Producer surplus is measured by the area below the price and above the supply curve, up to the quantity sold. • Figure 5.5 on the next slide shows the producer surplus for pizza for an individual producer.

  22. Cost, Price, and Producer Surplus • The price is the market price, which is the same for each unit sold. • The quantity sold is determined by the supply curve and the red area shows the total cost of producing pizza. • The blue triangle shows the producer surplus from pizza.

  23. Cost, Price, and Producer Surplus • The producer surplus on the 50th pizza is the $15 that the producer receives minus the $10 that it cost to produce, which is $5 a pizza.

  24. Is the Competitive Market Efficient? • Efficiency of Competitive Equilibrium • Figure 5.6 shows that a competitive market creates an efficient allocation of resources at equilibrium. • In equilibrium, the quantity demanded equals the quantity supplied.

  25. Is the Competitive Market Efficient? • At the equilibrium quantity, marginal benefit equals marginal cost, so the quantity is the efficient quantity. • The sum of consumer and producer surplus is maximized at this efficient level of output.

  26. Is the Competitive Market Efficient? • The Invisible Hand • Adam Smith’s “invisible hand” idea in the Wealth of Nations implied that competitive markets send resources to their highest valued use in society. • Consumers and producers pursue their own self-interest and interact in markets. • Market transactions generate an efficient—highest valued—use of resources.

  27. Is the Competitive Market Efficient? • Obstacles to Efficiency • Markets are not always efficient and the obstacles to efficiency are: • Price ceilings and floors • Taxes, subsidies, and quotas. • Monopoly • External costs and external benefits. • Public goods and common resources

  28. Price ceiling and Price floor • Price ceiling Price floor P ES P 5 P1 1 3 1 3 Po DW Po DW 2 4 4 2 P1 5 ED Q Q3 Q1 Q2 Q Q3 Q1 Q2

  29. 課稅與補貼 課稅 補貼 P S＋tax P S S－subsidies S 1 P1 7 2 5 1 P0 P1 3 6 8 DW P2 2 4 P0 5 3 6 DW P2 4 D D Q0 Q1 Q Q1 Q0 Q

  30. Is the Competitive Market Efficient? • Underproduction and Overproduction • Obstacles to efficiency lead to underproduction or overproduction and create a deadweight loss—a decrease in consumer and producer surplus.

  31. Is the Competitive Market Efficient? • Figure 5.7a shows the effects of underproduction. • The efficient quantity is 10,000 pizzas a day. • If production is restricted to 5,000 pizzas a day, a dead weight loss arises from underproduction.

  32. Is the Competitive Market Efficient? • Figure 5.7b shows the effects of overproduction. • Again, the efficient quantity is 10,000 pizzas a day. • If production is expanded to 15,000 pizzas a day, a dead weight loss arises from overproduction.

  33. Is the Competitive Market Fair? • Ideas about fairness can be divided into two groups: • It’s not fair if the result isn’t fair • It’s not fair if the rules aren’t fair

  34. Is the Competitive Market Fair? • It’s Not Fair if the Result Isn’t Fair • The idea that “it’s not fair if the result isn’t fair” began with utilitarianism, which is the principle that states that we should strive to achieve “the greatest happiness for the greatest number.” • If everyone gets the same marginal utility from a given amount of income, and if the marginal benefit of income decreases as income increases, taking a dollar from a richer person and given it to a poorer person increases the total benefit. Only when income is equally distributed has the greatest happiness been achieved.

  35. Is the Competitive Market Fair? • Figure 5.8 shows how redistribution increases efficiency. • Tom is poor and has a high marginal benefit of income. • Jerry is rich and has a low marginal benefit of income. • Taking dollars from Jerry and giving them to Tom until they have equal incomes increases total benefit.

  36. Is the Competitive Market Fair? • Utilitarianism ignores the cost of making income transfers. • Recognizing these costs leads to the big tradeoff between efficiency and fairness. • Because of the big tradeoff, John Rawls proposed that income should be redistributed to point at which the poorest person is as well off as possible.

  37. Is the Competitive Market Fair? • It’s Not Fair If the Rules Aren’t Fair • The idea that “it’s not fair if the rules aren’t fair” is based on the symmetry principle, which is the requirement that people in similar situations be treated similarly.

  38. Is the Competitive Market Fair? • In economics, this principle means equality of opportunity, not equality of income. Robert Nozick suggested that fairness is based on two rules: • The state must create and enforce laws that establish and protect private property. • Private property may be transferred from one person to another only by voluntary exchange. • Pages 114–115 present an extended illustration of two proposals for achieving a fair and efficient use of resources.

  39. 我國所得分配狀況如何？與其他國家比較情況又如何？http://www.stat.gov.tw/ct.asp?xItem=963&ctNode=513中華民國統計資訊網我國所得分配狀況如何？與其他國家比較情況又如何？http://www.stat.gov.tw/ct.asp?xItem=963&ctNode=513中華民國統計資訊網 • 答：92年台灣地區平均每戶可支配所得88.2萬元，較 91年增加0.7％。若可支配所得按戶數五等分位觀察，最高20％家庭每戶可支配所得為180.0萬元，最低20％家庭每戶所得29.6萬元，高低所得差距6.07倍，與91年之 6.16倍相較，縮小0.09倍，惟如剔除戶量因素，按家庭內每人可支配所得衡量，92年高低所得差距倍數僅2.77倍。若與世界主要國家地區比較，我國家庭所得差距倍數略高於日本之4.8倍（1999），但較南韓6.8倍（2000）、法國7.5倍（1989）美國10.2倍（2002）、香港17.7倍（2001）、新加坡 20.9倍（2000）為低。

  40. 近年政府推動社會福利政策，對家庭所得重分配效果有何影響？資料來源:中華民國統計資訊網近年政府推動社會福利政策，對家庭所得重分配效果有何影響？資料來源:中華民國統計資訊網 • 答：政府各項社會福利政策多屬對弱勢族群的生活照護，隨社會福利政策擴大推展，對家庭所得重分配具正面效果。92年各級政府發放之低收入戶生活補助、中低收入戶老人生活津貼、老農福利津貼、殘障生活補助及災害、急難救助，加上政府補助各項社會保險保費支出(包括全民健保、私校公保、勞保、農保等)，合計促使所得差距縮小1.13倍，顯示政府持續推動社會福利措施，有助低收入家庭所得提升，大幅減緩所得差距擴大趨勢。

  41. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • 景氣好轉，失業率下降，主計處公布九十三年家庭收支調查顯示，台灣貧富差距問題趨緩。其中，最高所得組可支配所得與最低所得組的差距為六‧○三倍，略低於去年六‧○七倍。不過，台灣吉尼係數仍高於ＯＥＣＤ（經濟合作發展組織）平均三○‧六％，顯示台灣的貧富差距問題仍不能輕忽。

  42. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • 主計處公布九十三年家庭收支調查，去年平均每戶家庭所得一一二‧三萬元，等於每個月賺九萬四元，比前年增加一％。以繳稅後的可支配所得為指標，去年平均每戶可支配所得八九‧一萬元，也較前年增加一‧一％。在所得分配指標部分，依國際慣用的五等分法，所得最高的前五分之一家庭，平均可支配所得高達一七九‧二萬元，最低五分之一組則為二十九‧七萬元，兩者相差六‧○三倍，略低於去年六‧○七倍。

  43. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • ○所得分配趨緩 補助增加所致 • 主計長許璋瑤分析，所得分配趨緩，主因是最低所得組家庭來自政府社會福利補助增加九％所致。去年，立法院修法把老年津貼由三千元，提高到四千元；加上，將領到退休金的低所得勞工也納入。總計，政府的社會福利重分配功能，縮減所得差距一‧三八倍。換句話說，原本所得差距倍數高達七‧四五倍。

  44. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • 值得注意的是，去年台灣吉尼係數三三‧八％，儘管比前年下降○‧五個百分點，卻高出經濟合作發展組織（ＯＥＣＤ）二十七國最新平均三○‧六％。 • 吉尼係數是國際間衡量貧富差距的通用指標，數值介於Ｏ與百分一百之間，越高表示貧富差距問題越嚴重。 • 在ＯＥＣＤ國家中，社會福利做得最好的北歐四國丹麥、瑞典、芬蘭、挪威，加上奧地利、盧森堡、荷蘭等八國，吉尼係數約二六％最低。其餘，包括匈牙利、加拿大、西班牙、愛爾蘭、澳洲、紐西蘭、英國、日本，吉尼係數都比台灣低。台灣跟希臘、義大利、美國一組。不過，跟亞洲國家相比，台灣所得分配仍比新加坡、香港、韓國來得平均。

  45. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • ○勞動市場質變 家庭結構轉變 • 勞動市場質變與家庭結構轉變，是台灣所得分配難以大幅改善的理由。ＯＥＣＤ研究顯示，薪資所得不平均是使貧富差距惡化的主因。而薪資差距，就業與否，往往與教育程度有關。通常，失業家庭是貧窮率最高的族群，落入最低所得組。而受過高等教育，夫妻倆人都工作的雙薪家庭，則落在高所得組。

  46. 吉尼係數33.8% 台灣貧富不均 高於OECD平均陳一姍／台北報導 2005-08-19 02:50http://news.yam.com/chinatimes/life/200508/20050819892070.html • 淡大經濟系副教授林金源研究指出，所得分配惡化，除了職場變遷的因素外，傳統家庭解體也是原因之一，老人、單親家庭變多，一旦家中唯一有工作能力的人失業，就很容易使得整個家庭陷入貧窮絕境。ＯＥＣＤ經驗指出單親家庭貧窮率是一般家庭的三倍，一旦單親的爸爸或媽媽失業貧窮率又會增加五七％。

  47. THE END

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