海曼财政学课后答案ch02.docx

海曼财政学课后答案ch02.docx

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海曼财政学课后答案ch02

Chapter2

Efficiency,Markets,

andGovernment

InstructionalObjectives

Themainobjectiveofthischapteristodeveloptheconceptofefficiencyandshowstudentshowitisusedtoevaluateeconomicperformance.Tobeginthediscussion,itisnecessarytodrawthedistinctionbetweenpositiveandnormativeeconomics.Bothoftheseapproachesareusedinthechapter.Anadditionalinstructionalobjectiveisthereforetodemonstratetheusefulnessofeachtypeofanalysis.

Theconceptofefficiencyiscarefullylinkedtoresourceallocationandeconomictransactions.Thechapteralsointroducesthestudenttomarginalanalysisofresourceallocation.Thedistinctionbetweentotalsocialcostandbenefit,andmarginalsocialcostandbenefitisdrawnforstudents.Graphicanalysisisthenusedtoderivethemarginalconditionsforefficiency.TheobjectiveistoshowstudentsthatmaximizationofnetsocialbenefitrequiresthatallactivitiesbeundertakenineachtimeperioduptothepointatwhichMSB=MSC.

Theanalysisisthenusedtoevaluateresourceallocationincompetitivemarketsoperatingunderconditionsofperfectcompetitionwithnoexternalities.Thisisfollowedbyexamplesshowinghowmonopolypowerandgovernmentinterventioncanresultinlossesinefficiencyinmarkets.Theobjectivehereistoshowhowwelfaretrianglescanbeusedtomeasurelossesinwell-beingwhenefficiencyisnotachieved.

Theequity-efficiencytradeoffisalsointroducedinthechapter.Theutilitypossibilitycurveisusedtoshowstudentshowcitizensoftenrationallyopposemovementstoefficientresourceusewhencompensationforlossesinwell-beingisnotactuallypaid.Positiveanalysisoftheequity-efficiencytradeoffisalsoprovided,therebyclosingthechapterwithanillustrationofhowthepositiveapproachisusefultonormativeanalysis.

ChangesinThisEdition

Thischapterhasbeenupdatedwhereneeded.Otherwise,therehavebeennochangesinthiscoretheorychapter.Anewproblemwasaddedtotheendofthechapter.

ChapterOutline

PositiveandNormativeEconomics

NormativeEvaluationofResourceUse:

TheEfficiencyCriterion

MarginalConditionsforEfficiency

Markets,Prices,andEfficiencyConditions

WhenDoesMarketInteractionFailtoAchieveEfficiency?

MonopolisticPower

HowTaxesCanCauseLossesinEfficiencyinCompetitiveMarkets

PublicPolicyPerspective:

TheTaxSystemandtheBirthRate—AnExampleofPositiveEconomicAnalysis

HowGovernmentSubsidiesCanCauseLossesinEfficiency

MarketFailure:

APreviewoftheBasisforGovernmentActivity

EquityversusEfficiency

TheTradeoffbetweenEfficiencyandEquity:

AGraphicAnalysis

TheTradeoffbetweenEquityandEfficiencyinaSystemofCompetitiveMarkets

PositiveAnalysisTradeoffBetweenEquityandEfficiency

InternationalView:

AgriculturalSubsidies,InternationalTradeRestrictions,andGlobalEfficiency

MajorPointsandLectureSuggestions

1.Instructorsmaywishtoemphasizethedifferencebetweenthenormativeandpositiveapproaches.Thenormativeapproachisbasedonunderlyingvaluesthatembodyanindividualisticethic.Thepositiveapproachissimplyascientificmethodusedtoformulatehypothesessubjecttoempiricalverification.Ipointouttomystudentsthatthenormativeapproachinpublicfinancesetsupbenchmarksagainstwhichtheimpactofgovernmentregulations,expenditures,andtaxescanbeevaluated.

2.Therearetwoaspectsofefficiencythatareusefultoemphasizeinlectures:

a.Efficiency,asthetermiscommonlyusedbythelayperson,simplymeansavoidanceofwasteinachievinganyusefulobjective.Studentsaremostlikelyalreadyfamiliarwiththisaspectofefficiency.

b.Thesecondaspectofefficiencydealswithexchange.Evenwhenproductionisaccomplishedwithoutwaste,additionalnetgainsareusuallypossiblethroughmutuallyagreeableexchanges.

Indiscussingthesecondaspectofefficiency,withwhichstudentsarelessfamiliar,youcanpointoutthatfreedomtotradeisanimportantaspectofefficiency.Constraintsonmutuallyagreeabletradetherebypreventattainmentofefficiencywhennothirdpartiesareaffectedbythosetransactions.

3.Thederivationofthemarginalconditionsforefficiencyprovidesagoodopportunitytoreviewmarginalanalysisforstudents.Makesuretoconfineyourdiscussiontoaparticulargood.Theexampleinthetextusesbread.IfindthatstudentsarequitereceptivetothenotionthatnetsocialgainsaremaximizedwheneachpossiblegoodorserviceismadeavailableuptothepointatwhichMSB=MSC.TheinclusionofthetotalsocialbenefitandtotalsocialcostcurvesinFigure2.1inthetexthelpsstudentsseehowadditionalproductionofgoodsisinefficientbeyondthepointatwhichMSB=MSC,eventhoughTSB>TSCforadditionaloutput.

4.Noticehowthemarginalnetbenefitisdefinedasthedifferencebetweenthemarginalsocialbenefitandthemarginalsocialcostofanygivenquantityofagood.

5.Afterderivingtheefficiencyconditions,Iliketoreinforcethetheorybyimmediatelyshowingstudentshowthemarginalconditionsaresatisfiedunderidealconditionsinperfectlycompetitivemarkets.Indoingso,Iintroducetheconceptsofmarginalprivatebenefitandmarginalprivatecost.IshowhowP=MPB=MPCincompetitivemarkets.Finally,IsetthestageforfutureanalysisinChapter3bypointingoutthat,providednothirdparties（otherthanbuyersandsellers）areaffectedbymarketexchanges,P=MSB=MSC.Becausetheseconditionsareusedthroughoutthetext,itisimportantforstudentstounderstandthederivation.Ifindthatstudentshavelittledifficultywiththeexposition.Ifyougetthesignificanceofthesepointsacrossearlyinthecourse,itiseasytoshowhowtaxesandsubsidiespreventpricesfromsimultaneouslyreflectingmarginalsocialcostsandbenefits.

Thenumericalexampleinthetexthasbeenhelpfultomystudents.NotethatIusethesamenumberswhendiscussingcompetitivemarketsforbread.

6.Theobviousnextstepistoprovideyourstudentswithexamplesofcasesforwhichmarketsdonotachieveefficiency.Theexerciseofmonopolypowerisagoodexampleofhowlackofcompetitioninmarketscancauselossesinefficiency.Thisexamplecanthenbesupplementedwithanalysisoftheeffectsoftaxesandsubsidiesonprivatechoicesinmarkets.TheexampleoftargetpricesforagricultureintheUnitedStatesshowshowsubsidiestoagricultureresultinmorethantheefficientamountofresourcesallocatedtoagriculturaluses.

Youmightwishtosupplementtheseexampleswithsomeofyourown.Inanycase,themaininstructionalobjectiveistoshowstudentshowlossesinwell-beingresultingfrominefficientoutputlevelscanbemeasuredastriangularareasinthegraphs.

ThePublicPolicyPerspectiveshowsstudentshowthepersonalexemptionintheU.S.incometaxcanbeviewedasasubsidytoraisingchildren.

7.Ibelievethatitisimportanttoemphasizetheequity-efficiencytradeoffearlyinthecourse.Thisprovidesanopportunitytoshowhowthepositiveapproachcanbeusedtopredictthenetgainsandlossestocitizens.Theutilitypossibilitycurveisagoodtooltoillustratepoliticalconflict.Firstmakesurethatstudentsseethesimilaritybetweentheutilitypossibilitycurveandtheproductionpossibilitycurve.Inparticular,pointoutthatthemaximumpossiblelevelofwell-beingofanyoneperson,giventhewell-beingofothers,dependsonresourcesavailableandtechnology.Thecurvealsoshowshowthereisnooneuniqueefficientallocationofresources.Itcanbeusedtoshowhowtheefficientoutcomesofcompetitiveinteractioncanresultinadistributionofwell-beingforwhichmanypersonsliveinpoverty.

8.Iliketousetheutilitypossibilitycurvetoshowhowchangesinresourceallocationcanresultinbothgainersandlosersevenwhenthereismovementfrominefficienttoefficientresourceuse.Unlesscompensationisactuallypaid,thelosersacttopreventtheresourcechangethatmakesthemworseoff.

ANoteontheAppendixtoChapter2

TheappendixtoChapter2setsupatwo-dimensionalmodelofefficientresource.Thisappendixcaneasilybeskippedbecausethebasicnotionsaredevelopedintuitivelywithinthechapter.If,however,you havegoodstudents,youcanassigntheappendixandderivetheconditionsinclass.ThestandardwelfaremodelisdevelopedintheappendixandEdgeworth-Bowleyboxesareusedtoderivetheefficiencyconditions.

OutlineoftheAppendixtoChapter2

AModelofEfficientResourceUse

ProductionandTechnology

ProductiveEfficiency

TheProductionPossibilityCurve

TastesandUtility

AttainmentofEfficiency

AnInterpretationofEfficiencyConditions

RankingEfficientOutcomes:

SocialWelfareFunctions

EfficiencyandEconomicInstitutions

PureMarketEconomyandProductiveEfficiency

APureMarketEconomyandParetoEfficiency

IncomeDistribution

AlternativeEconomicInstitutionsandEfficiency

MarketImperfections

True/FalseQuestions

1.Thenormativeapproachtopublicfinanceprescribescertainactionstoachievepredeterminedcriteria. （T）

2.Positiveeconomicanalysisisbasedonunderlyingvaluejudgments. （F）

3.“Thegovernmentshouldabolishtariffstoachieveefficiency”isanormativestatement. （T）

4.Itispossibleforefficiencynottobeattainedevenifallproductioniscarriedonwithoutwaste. （T）

5.Efficiencyisattainedwhenresourcesareusedeachyearinsuchawaythatnofurthernetgainispossible. （T）

6.Theefficientannualoutputofanygivengoodisattainedifthatgoodismadeavailableinamountsuptothepointatwhichthetotalsocialbenefitofthegoodequalsthetotalsocialcost