英文版微观经济学复习提纲Chapter 5. Economic efficiency, government price setting and taxes

5

Economic Efficiency, Government

Price Setting, and Taxes

Chapter Summary

Although rent controls no longer in Australia, many governments around the world, such as Malaysia and the U.S., have placed ceilings on the maximum rent some landlords can charge for some apartments and houses. Governments also impose taxes in some markets. To understand the economic impact of government in markets it is necessary to understand consumer surplus and producer surplus.

Consumer surplus is the dollar benefit consumers receive from buying goods and services at market prices less than the maximum prices they would be willing to pay. Producer surplus is the dollar benefit producers receive from selling goods and services at prices greater than the minimum prices they would be willing to accept. In a competitive market with no externalities the equilibrium price for a good or service occurs where the marginal cost of the last unit produced and sold is equal to the marginal benefit consumers receive from the last unit bought. At this same level of output, economic surplus, the sum of consumer and producer surplus, is maximized.

Although price controls on rent no longer exist in Australia, there are many other examples of the government setting prices, such as the minimum wage in labour markets (a “floor price”). Compared to the competitive equilibrium, price ceilings and price floors reduce economic efficiency.

A tax on the sale of a good or service also reduces economic efficiency. The burden of a tax (or tax incidence) is the degree to which consumers or producers actually pay the tax. The incidence of a tax depends on how responsive producers and consumers are to the price change caused by the tax.

Learning Objectives

When you finish this chapter you should be able to:

1Understand the concepts of consumer surplus and producer surplus. Consumer surplus is the benefit consumers receive from paying a price lower than the maximum price they would be willing to pay. Producer surplus is the benefit a firm receives from selling a good or a service at a price higher than the minimum the firm would be willing to accept. Economic surplus is the sum of consumer surplus plus producer surplus.

2Understand the concept of economic efficiency, and use a graph to illustrate how economic efficiency is reduced when a market is not in competitive equilibrium. An economically efficient outcome occurs when a competitive market equilibrium is reached. Maximum economic efficiency results when the marginal benefit received by consumers from the last unit bought equals the marginal