Efficiency v. Equity – Efficiency means society gets the most that it can from its scarce resources. – Equity means the benefits of those resources are distributed fairly among the members of society
Types of Imperfectly Competitive Markets Monopolistic Competition – Many firms selling products that are similar but not identical. Oligopoly – Only a few sellers, each offering a similar or identical product to the others
“In this world nothing is certain but death and taxes.” . . . Benjamin Franklin 0 20 40 60 80 100 1789 Taxes paid in Ben Franklin’s time accounted for 5 percent of the average American’s income
International Trade What determines whether a countryimports or exports a good? Who gains and who loses from free tradeamong countries? What are the arguments that people usedto advocate trade restrictions?
Differences in Earningsin the U.S. Today The typical physician earns about $200,000a year. The typical police officer earns about$50,000 a year. The typical farm worker earns about$20,000 a year
Importance of Supply-Demand Analysis A little knowledge goes a long way: Price Control, Taxation and other policies. Market welfare: Normative Analysis International Trade Externality (Market Failure) Market Power (Market Failure) Other markets: Financial Market, Labor Market. Macroeconomics
Market Efficiency-Market Failure Recall that: Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market
Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? Market equilibrium reflects the way markets allocate scarce resources. Whether the market allocation is desirable is determined by welfare economics
Elasticity… … is a measure of how much buyers and sellers respond to changes in market conditions … allows us to analyze supply and demand with greater precision
