Abstract
This chapter extends the analysis in the preceding two chapters in two directions. First, it focuses on shifts in demand and supply. Then it addresses allocative efficiency which, combined with the productive efficiency the previous chapters have introduced, generates economic efficiency. Economic efficiency is realized when resources are used in a way that results in the highest-valued set of goods and services being produced. This chapter also addresses the distorting effects of taxes placed on the exchange of specific goods or services.
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Notes
- 1.
- 2.
Previous chapters indicate that long-run supply curves are likely to be quite elastic. In contrast, short-run supply curves can be inelastic. Thus, in the short run price is affected more by the shift than in the short run, as we have already seen.
- 3.
We do not address the important question raised by Coase [1] regarding the institutional settings within which externalities are likely to be an issue.
- 4.
Note, however, that neither of the surpluses individually reaches its maximum value at this quantity. This fact can be the basis of pressures for public policies to favor one group over the other. It can also be the basis for attempts to coordinate actions among either sellers or buyers to affect the market price.
References
Coase RH (1960) The problem of social cost. J Law Econ 3:1–44
Mas-Colell A, Whinston MD, Green JR (2005) Microeconomic theory. Oxford University Press, New York
Nicholson W, Snyder C (2008) Microeconomic theory: basic principles and extensions, 11th edn. South-Western, Mason
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Hammock, M.R., Mixon, J.W. (2013). Competitive Markets: Extensions and Application. In: Microeconomic Theory and Computation. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-9417-1_10
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DOI: https://doi.org/10.1007/978-1-4614-9417-1_10
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