Chapter 3: Inefficiency

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Chapter 3 Inefficiency

• Adam Brain

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Inefficiency

• Occurs in situations where optimum price and
  quantity are not met.
• Numerous causes.

3
Timeframes

• Shortrun Static Efficiency
• Longrun Dynamic Efficiency

4
Rules for Allocation

• Costs of goods and services versus
  benifits...measured by oppertunity costs.

5
Inefficiency in the private sector

• Called market failure. Most popular example is
  Monopoly.

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Nonexistant Markets

• Unrealized external benifits.
• Public Goods.
• External costs.

7
Inocmplete markets

• A market without free entry for consumers.
• Best decribed by insurance exemptions.

8
Inefficiency in the public sector

• Rent controls.
• Agricultural Price Supports.
• Government-subsidized Medical Care.
• Minimum Wage.
• Tax collection.

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Tradeoffs of efficiency

• Some taxes, like the cigarette tax, are cutting
  external costs.
• Some efficiency losses are considered necessary
  evil, in order to maintain equity.