Los requisitios particulares de la legítima defensa colectiva

loss Deadweight

loss

S = MC

D = MB Deadweight loss

The decrease in total surplus that results from an inefficient

underproduction or overproduction.

Market Failure

Markets do not always achieve an efficient outcome. We call a situation in which a market delivers an inefficient outcome one of market failure. Market failure can occur because either too little of an item is produced—underproduction—or too much is produced—overproduction.

Underproduction

In Figure 6.9(a), the quantity of pizza produced is 5,000 a day. At this quantity, consumers are willing to pay $15 for a pizza that costs only $6 to produce. The quantity produced is inefficient—there is underproduction.

A deadweight loss, which is the decrease in total surplus that results from an inefficient underproduction or overproduction, measures the scale of the ineffi-ciency. The area of the gray triangle in Figure 6.9(a) measures the deadweight loss.

Overproduction

In Figure 6.9(b), the quantity of pizza produced is 15,000 a day. At this quantity, consumers are willing to pay only $5 for a pizza that costs $14 to produce. By pro-ducing the 15,000th pizza, $9 is lost. Again, the gray triangle shows the dead-weight loss. The total surplus is smaller than its maximum by the amount of the deadweight loss. The deadweight loss is borne by the entire society. It is not a loss for the producer and a gain for the consumers. It is a social loss.

If production is restricted to 5,000 pizzas a day, a deadweight loss (the gray triangle) arises.Total surplus is reduced by the area of the deadweight loss triangle. Underproduction is inefficient.

If production increases to 15,000 pizzas, a deadweight loss arises.

Total surplus is reduced by the area of the deadweight loss trian-gle. Overproduction is inefficient.

Sources of Market Failure

Obstacles to efficiency that bring market failure and create deadweight losses are

• Price and quantity regulations

• Taxes and subsidies

• Externalities

• Public goods and common resources

• Monopoly

• High transactions costs Price and Quantity Regulations

Price regulations that put a cap on the rent a landlord is permitted to charge and laws that require employers to pay a minimum wage sometimes block the price adjustments that balance the quantity demanded and the quantity supplied and lead to underproduction. Quantity regulations that limit the amount that a farm is permitted to produce also lead to underproduction.

Taxes and Subsidies

Taxes increase the prices paid by buyers and lower the prices received by sellers.

So taxes decrease the quantity produced and lead to underproduction. Subsidies, which are payments by the government to producers, decrease the prices paid by buyers and increase the prices received by sellers. So subsidies increase the quan-tity produced and lead to overproduction.

Externalities

An externality is a cost or a benefit that affects someone other than the seller and the buyer of a good. An electric utility creates an external cost by burning coal that brings acid rain and crop damage. The utility doesn’t consider the cost of pollu-tion when it decides how much power to produce. The result is overproducpollu-tion.

A condominium owner would provide an external benefit if she installed a smoke detector. But she doesn’t consider her neighbor’s marginal benefit and decides not to install a smoke detector. The result is underproduction.

Public Goods and Common Resources

A public good benefits everyone and no one can be excluded from its benefits.

National defense is an example. It is in everyone’s self-interest to avoid paying for a public good (called the free-rider problem), which leads to its underproduction.

A common resource is owned by no one but used by everyone. Atlantic salmon is an example. It is in everyone’s self-interest to ignore the costs of their own use of a common resource that fall on others (called the tragedy of the commons), which leads to overproduction.

Monopoly

A monopoly is a firm that is the sole provider of a good or service. Local water sup-ply and cable television are supplied by firms that are monopolies.

The self-interest of a monopoly is to maximize its profit. Because the monop-oly has no competitors, it can set the price to achieve its self-interested goal. To achieve its goal, a monopoly produces too little and charges too high a price, which leads to underproduction.

Transactions costs The opportunity costs of making trades in a market.

High Transactions Costs

Stroll around a shopping mall and observe the retail markets in which you par-ticipate. You’ll see that these markets employ enormous quantities of scarce labor and capital resources. It is costly to operate any market. Economists call the opportunity costs of making trades in a market transactions costs.

To use market prices as the allocators of scarce resources, it must be worth bearing the opportunity cost of establishing a market. Some markets are just too costly to operate. For example, when you want to play tennis on your local “free”

court, you don’t pay a market price for your slot on the court. You hang around until the court becomes vacant, and you “pay” with your waiting time.

When transactions costs are high, the market might underproduce.

Alternatives to the Market

When a market is inefficient, can one of the alternative non-market methods that we described at the beginning of this chapter do a better job? Sometimes it can.

Table 6.1 summarizes the sources of market failure and the possible remedies.

Often, majority rule might be used, but majority rule has its own shortcomings. A group that pursues the self-interest of its members can become the majority. For example, price and quantity regulations that create deadweight loss are almost always the result of a self-interested group becoming the majority and imposing costs on the minority. Also, with majority rule, votes must be translated into actions by bureaucrats who have their own agendas.

Managers in firms issue commands and avoid the transactions costs that they would incur if they went to a market every time they needed a job done. First-come, first-served saves a lot of hassle in waiting lines. These lines could have markets in which people trade their place in the line—but someone would have to enforce the agreements. Can you imagine the hassle at a busy Starbucks if you had to buy your spot at the head of the line?

There is no one mechanism for allocating resources efficiently. But markets bypassed by command systems inside firms and supplemented by majority rule and first-come, first-served do an amazingly good job.

Price and quantity regulations Taxes and subsidies

Externalities Public goods Common resources Monopoly

High transactions costs 1.

2.

3.

4.

5.

6.

7.

Remove regulation by majority rule Minimize deadweight loss by majority rule Minimize deadweight loss by majority rule Allocate by majority rule

Allocate by majority rule Regulate by majority rule

Command or first-come, first-served Reason for market failure Possible remedy

Table 6.1

Market Failure and Some Possible Remedies

MyEconLab

You can work these problems in Study Plan 6.4 and get instant feedback.

CHECKPOINT 6.4

Evaluate the efficiency of the alternative methods of allocating resources.

Practice Problems

Figure 1 shows the market for paper.

1. At the market equilibrium, what are consumer surplus, producer surplus, and total surplus? Is the market for paper efficient? Why or why not?

2. Lobbyists for a group of news magazines persuade the government to pass a law that requires producers to sell 50 tons of paper a day. Is the market for paper efficient? Why or why not? Shade the deadweight loss on the figure.

3. An environmental lobbying group persuades the government to pass a law that limits the quantity of paper that producers sell to 20 tons a day. Is the market for paper efficient? If not, what is the deadweight loss?

In the News

Senate votes to end ethanol subsidies

The Senate has voted to end the $6 billion a year in subsidies paid to the ethanol industry for the past three decades. Refiners would lose the 45-cent-a-gallon subsidy, and the tax on imported ethanol would be eliminated.

Source: USA Today, June 16, 2011 Describe the efficiency of the market for ethanol with the $6 billion subsidies in place. If the subsidies and taxes are eliminated, explain how the efficiency of the market for ethanol would change.

Solutions to Practice Problems

1. Market equilibrium is 40 tons a day at a price of $3 a ton (Figure 2).

Consumer surplus ⫽ ($9 ⫺ $3) ⫻ 40 ⫼ 2 ⫽ $120 (the area of the green tri-angle in Figure 2). Producer surplus is ($3 ⫺ $1) ⫻ 40 ⫼ 2, which equals

$40 (the area of the blue triangle in Figure 2). Total surplus is the sum of consumer surplus and producer surplus, which is $160.

The market is efficient because marginal benefit (on the demand curve) equals marginal cost (on the supply curve) and total surplus (consumer sur-plus sur-plus producer sursur-plus) is maximized.

2. The market is inefficient because marginal cost exceeds marginal benefit.

Deadweight loss is the area of the gray triangle 1 in Figure 3.

3. This market is now inefficient because marginal benefit exceeds marginal cost. The deadweight loss is the area of the gray triangle 2 in Figure 3.

Solution to In the News

Subsidies to producers increase the supply of the good, which decreases the market price. The price received by producers equals the market price plus the subsidy per gallon, which results in overproduction and inefficiency. A dead-weight loss arises. By eliminating the subsidies and taxes, overproduction will decrease. The market for ethanol will be more efficient, and the deadweight loss will decrease.

FIGURE 1 Price (dollars per ton)

Quantity (tons per day) 70 Price (dollars per ton)

Quantity (tons per day) 60 Price (dollars per ton)

Quantity (tons per day) 60

6.5 ARE MARKETS FAIR?

Following a severe winter storm or hurricane, the prices of many essential items jump. Is it fair that disaster victims should be hit with higher prices? Many low-skilled people work for a wage that is below what most would regard as a living wage. Is that fair? How do we decide whether something is fair or unfair?

Economists have a clear definition of efficiency but they do not have a sim-ilarly clear definition of fairness. Also, ideas about fairness are not exclusively economic ideas. They involve the study of ethics.

To study ideas about fairness, think of economic life as a game—a serious game—that has rules and a result. Two broad and generally conflicting approaches to fairness are

• It’s not fair if the rules aren’t fair.

• It’s not fair if the result isn’t fair.

It’s Not Fair If the Rules Aren’t Fair

Harvard philosopher Robert Nozick argued for the fair rules view in a book enti-tled Anarchy, State, and Utopia, published in 1974. Nozick argued that fairness requires two rules:

• The state must establish and protect private property rights.

• Goods and services and the services of factors of production may be transferred from one person to another only by voluntary exchange with everyone free to engage in such exchange.

The first rule says that everything that is valuable—all scarce resources and goods—must be owned by individuals and that the state must protect private property rights. The second rule says that the only way a person can acquire something is to buy it in voluntary trade.

If these rules are followed, says Nozick, the outcome is fair. It doesn’t matter how unequally the economic pie is shared provided that the people who bake it supply their services voluntarily in exchange for the share of the pie offered in compensation. Opportunity is equal but the result might be unequal. This fair rules approach is consistent with allocative efficiency.

It’s Not Fair If the Result Isn’t Fair

Most people think that the fair rules approach leads to too much inequality—to an unfair result: For example, that it is unfair for a bank president to earn millions of dollars a year while a bank teller earns only thousands of dollars a year.

But what is “too unequal”? Is it fair for some people to receive twice as much as others but not ten times as much or a hundred times as much? Or is all that mat-ters that the poorest people shouldn’t be “too poor”?

There is no easy answer to these questions. Generally, greater equality is regarded as good but there is no measure of the most desirable shares.

The fair result approach conflicts with allocative efficiency and leads to what is called the big tradeoff—a tradeoff between efficiency and fairness that recog-nizes the cost of making income transfers.

The big tradeoff is based on the fact that income can be transferred to people with low incomes only by taxing people with high incomes. But taxing people’s

Big tradeoff

A tradeoff between efficiency and fairness that recognizes the cost of making income transfers.

Price (dollars per unit)

Quantity (units per day)

5 7 10 15

rise with no price gouging law

Deadweight loss from price gouging law

In document TESIS DOCTORAL (página 96-99)