Survey
* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project
Download Flagship Course Module 1 Overview
Document related concepts
no text concepts found
Transcript
Flagship Course Module 1 Overview The Basics of Market Three Fundamental Questions • What goods and services should be produced and how? • How much of each type of good and service should be produced? • How should these goods and services be distributed among members in society? Three Fundamental Questions • What goods and services should be produced and how? MARKET • How much of each type of good and service should be produced? • How should these goods and services be distributed among members in society? Market Under certain conditions markets can lead to a: • Technically • Cost-effectively and • Allocatively Efficient allocation of resources. Prices Ensure That: • On the production side resources are used in their most productive way • On the consumption side goods go to those who value them most Efficiency-equity Relationship Income and wealth distribution Equity Individual ability and willingness to pay Market-based resource allocation Efficiency Conditions for a Well-functioning Market 1- Production Side • Many producers • Free entry and exit of producers • Low fixed cost • No production externality Conditions for a Well-functioning Market 2- Consumption Side • Informational symmetry • No consumption externality • No dominant consumer Externality • Production externality Social cost = Private cost + E • Consumption externality Social benefit = Private benefit ± E Determinants of Supply • Price • Production cost production continues to increase to the point where marginal cost equals marginal revenue Determinants of Demand • Price • Tastes, preferences and needs • Income • Price of complementary/substitute goods Demand Schedule Price elasticity of demand P2 P1 Q’2 Q’1 Q2 Q1 Quantity Demand Schedule Vertical height of demand schedule P2 P1 Q1 Q2 Quantity Supply Schedule Price elasticity of supply P2 P1 Q1 Q2 Quantity Supply Schedule P2 Vertical height of supply schedule P1 Q2 Q1 Quantity Interaction of Demand and Supply Schedule D S PE P0 Q0s QE Q 0d Quantity Externality • Production externality Social cost = Private cost + E • Consumption externality Social benefit = Private benefit ± E Efficiency of the Market MSC MPC P MPB MSB = = = = = Marginal Marginal Price Marginal Marginal Social Cost Private Cost Private Benefit Social Benefit MSC = MPC = P = MPB = MSB Efficiency of the Market • Consumers’ surplus: Consumers’ value – Price • Producers’ surplus: Price – Actual production cost Efficiency = Maximizing Surplus Surplus S = MSC a c P b D = MSB Q Surplus = (a + c) + (b – c) = a + b Surplus S = MSC a d c P b e D = MSB Q Surplus = (a + c - e) + (b – c - d) = (a + b) – (d + e) Efficiency of the Market S = MSC a PE b D = MSB QE Surplus = a + b Market Failure MSC = MPC = P = MPB = MSB Examples: • Water contamination by pesticides MSC > MPC • Inability of consumers to judge the true value of a good (automobile) P > MPB • Monopoly MPC < P Government Role in Market Failure Failure Government Role Water contamination by pesticides Taxation Inability of consumers to judge the true value of a good • Public education • Regulatory approach Monopoly Anti-trust regulations Major Features of Health Care • Uncertainty and risk • Informational asymmetries – Supplier-induced demand • Derived demand • Externality پشت درياها شهري است قايقي بايد ساخت
Related documents