Our economy produces chocolate that costs $1,000 a pound, but it doesn't provide a minimum level of health care for all.
Income distribution is not evenly distributed.
There is a demand for $1,000 a pound of chocolate.
Any one of a million other luxury items can be produced by businesses and sold on the market.
If one's goal is to maximize consumer and producer surplus, selling chocolate truffles at $1,000 a pound is efficient.
It would be inefficient to provide health care for the poor because of the distribution of income.
The poor don't have enough money to demand it.
The poor are not given much weight in the measure of consumer surplus.
The demand for the HIV/AIDS drug cocktail is an example of where the distribution of income likely makes a big difference.
The desire for the HIV/AIDS cocktail among individuals with HIV/AIDS is high.
There is little demand for the drug among those without HIV/AIDS.
One-fifth of the population in a few African countries has HIV/AIDS.
In Africa, the consumer surplus from the desire for the HIV/AIDS drug cocktail would be enormous.
Most people in Africa don't have a lot of money, so they can't afford a cocktail if it's priced in the US.
Those who can't afford the drugs would not get a consumer surplus.
It would be inefficient to give them drugs.
The prices of HIV/AIDS drugs to African nations were significantly reduced despite the fact that it is inefficient to provide HIV/AIDS drugs to low-income Africans.
There have been declining incidents of HIV/AIDS and distributional issues trumped efficiency issues.
The purpose of these examples is not to convince you that the consumer surplus is useless.
For most goods, maximizing total demonstrates the power of competitive markets.
The examples show that surplus is a useful shorthand.
Society's sole purpose is not to maximize con sumer and producer surplus.
Society has other goals as well.
The competitive result may not be the one that is desired once these other goals are taken into account.
Social safety nets such as welfare, unemployment insurance, and Medicaid are established by societies to integrate other goals into the market economy.
What indi viduals receive does not depend on what they earn in the market.
Favoring the market outcome in most cases is not inconsistent with favoring a social safety net in others.
John has to have another drink because he drinks more than is good for him.
Some people don't do what is in their own best interest when they have full information.
The market solution is not necessarily the best one if they don't do what's best for themselves.
The market is working, but the outcome may be a failure.
The government wants between the effect of a sin tax and the effect of a tax on revenue.
If an inelastic demand raises revenue, would a policy maker be better?
If the purpose is to raise revenue while creating only nue with relatively little effect on the efficiency of deadweight loss, an inelastic demand market.
The table below shows a quick review of when a more tax will be most effective, given the goal of elastic demand curve is better because of a relatively small government.
Consider how taxation can be used to reduce consumption.
The tax will not decrease smoking if the demand is elastic and the efficiency loss is low.
Potato chips are bad for us, but they taste great.
Even if we don't have serious addictions, we may have minor ones because we don't know what we want and we are influenced by what people tell us.
Businesses spend hundreds of billions of dollars every year to convince us that we want certain things.
If they thought further about it, they would not want it.
Getting people to want what is good for them is one of the reasons for government intervention.
If people could be made to stop smoking, they would be better off, according to the U.S. government.
The combination of consumer and producer surplus would be reduced by a tax on smoking.
The government decided that consumer surplus does not reflect indi viduals' welfare.
The argument for taxes to change behavior is different from the argument for taxes to raise revenue.
How much deadweight loss is created by the tax is taken into account when the government wants to raise revenue.
The government tries to discourage the use of the good that is being taxed by not taking into account deadweight loss.
The logic behind where to locate pollutant industries is based on cost/benefit analysis and calculations of the president of Harvard University.
These qualities are often accepted by ple.
He responded in hot water.
The chief economist at the Brazil's secretary of the environment signed a memo that argued that the World Bank should encourage but not insane.
Provide a concrete example of the LDCs by your thoughts of more migration of dirty industries to them.
The nature of the forgone earnings from increased the world we live in depends on the "economists".
As vice president, it will lose all point of view when you transport waste.
Nice Guy wants to save his son's life.
Slave Incorporated has been offering $300,000 to the first person who agrees to become a slave for life, but he doesn't have that kind of money.
He gets his money and saves his son.
The mar ket is working the way it is supposed to.
Nice Guy knows what he's doing and Slave Inc. knows what it's doing.
Both participants in the trade think it's making them better off.
A market outcome failure is an outcome that allows slavery.
Governments have developed laws that make it illegal to sell yourself into slavery.
Most societies regard certain rights as inalienable.
Inalienable rights can't be sold or given away.
Costs and benefits can't be weighed.
Slavery is wrong because the right to freedom is an inalienable right, and any trade that creates slavery should not be allowed.
We have to consider markets in a broader perspective to understand why market outcomes might be undesirable.
Individuals trade to make themselves better off.
The development of property rights is required for markets to come into existence.
Each side must be aware of what is happening.
If there are property rights, markets can exist.
The right to vote, the right to free speech, the right to the pursuit of happiness, and the right to life are all part of the constitution.
Property rights are related to the right to pursue happi ness.
Society must decide if property rights conflict with other rights.
Rights need to be prioritized in the constitution of a society.
Let's look at a few examples.
I came up to you with a gun and offered you either your money or your life.
This can be seen as a trade.
I control whether you live or die because I have a gun.
The money you have is in the hands of a market.
You will be better off if we make the trade because I will have more money and you will be better off because I don't shoot you.
I can't claim to own it because the right to your life was inalienable.
Even if the gun gave you power over your life, it didn't give me the right to it.
Prostitution, selling body parts, and selling babies are all moral prohibitions related to inalienable rights.
The moral questions do not have to be fought for by the consumer and producer.
It is irrelevant if something is wrong.
There are moral judgments that must be made about markets and prescriptions.
Consumer surplus arguments about markets achieving efficiency can be defeated by moral judgments.
In Chapter 12 there is an efficient-chicken-farming example.
If you believe that it is immoral to treat chickens the way efficient farming requires them to be treated, then the fact that the farming is efficient may not matter to you.
Distributional issues, issues of rationality, and the existence of inalienable rights are some of the types of problems that can arise in perfectly functioning markets.
When there is no market failure, these issues play a role in interpreting the policy results that follow from the economic model presented.
The failures of market outcomes do not call for government action.
Government failure is the reason.
If we believe that government's attempt to correct a failure will do more harm than good, we can still support the market as the lesser of two evils.
To correct a 1.
The problem should be recognized.
The problem should be recognized.
Have the ability to deal with it.
Government rarely does all three of these well.
Government action is often directed at the wrong problem at the wrong time.
The laws of supply and demand are the same for politicians as they are for everyone else.
The result of politics is that the redistribution of wealth doesn't go from rich to poor, but from one group of the middle class to another.
Public choice economists say that when the government enters the market, its incentives are not to achieve its goal in the least cost manner, but to provide a policy that its voting constituency likes.
The result is larger and larger government, with little benefit for society, and public choice economists say as little government intervention as possible.
Economic policy must be applied in a political context.
Economic policy must take political elements into account.
Politics is applied in a political context.
Politicians take market failures and failures of market outcomes into account when formulating policy.
The political system decides what rights are above the market, what a desirable distribution is, and what exter nalities should be adjusted for.
If the government's political decisions reflect the will of society, it is making a positive contribution.
Policy makers know that the laws and regulations they propose reflect such calculations.
Politicians don't get elected if they constantly say that all choices have costs and benefits.
Policy makers listen to the academic economists from whom they ask advice, and with whom in private they frequently agree, but often choose to ignore that advice.
The way in which economic reasoning influences policy can be subtle because government attempts to adjust for failures of market outcomes are subject to short-run political pressures.
Sometimes politicians put forward bills that don't make sense but that make them look good.
They hope that presenting the bills will allow enough time to pass so that emotions can cool and a more reasonable bill can be put forward.
Sometimes compromise bills include as much cost/benefit policy as possible, but also appeal to voters' emotional sense.
Economic policy made in the real world reflects a balancing of cost/benefit analysis and special interest desires.