Unformatted text preview: from the production of a good or service.
a ECONOMIC EFFICIENCY
o A market outcome in which the marginal benefit to
consumers of the last unit produced is equal to its
marginal cost of production, and in which the sum of
consumer surplus and producer surplus is at a
maximum. Price Floors and Price Ceilings
. To affect the market outcome, a price floor must be set above the equilibrium price, and a price ceiling must be set below
the equilibrium price.
. PRICE FLOORS
o Supporters of price floors see the minimum wage as a
way of raising the incomes of low—skilled laborers.
o Opponents argue that it results in fewer jobs and
imposes large costs on small businesses.
0 One policy many economists support is the earned
income tax credit.
.1- Reduces the amount of tax that low-income wage
earners would otherwise pay to the federal
government. - Increases the incomes of low-skilled workers
without reducing employment. (I) PRICE CEILINGS
o Supporters of price ceilings are typically consumers.
. BLACK MARKETS 0 When governments try to control prices by setting price ceilings or price floors, buyers and sellers often find a
way around the controls. 0 Black markets occur when people buy and sell at prices
that violate government price regulations.
The Result of Government Intervention
. Some people win, some people lose.
. There is a loss of economic efficiency.
Positive and Normative Analysis
. Positive analysis is concerned with what is, and normative
analysis is concerned with what should be. The effect of Taxes on Economic Efficiengg
o When a government taxes a good or service, less of that good or service will be produces. . A tax is efficient is‘ it imposes a small excess burden relative
to the tax revenue it raises. ...
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- Spring '08