Ebook Microeconomics (6E): Part 2
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Ebook Microeconomics (6E): Part 2
General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2 most wickedest of things for the greatest good of everyone.—John Maynard KeynesAfter a disaster strikes, prices lend to rise. For example. U.S. gasoline prices increased by an average of 46c per gallon after Hurricane Katrina in 2005 damaged most Gulf Coast oil refineries. Many state governments en Ebook Microeconomics (6E): Part 2force anti-price gouging laws to prevent prices from rising, while prices may be free to adjust in neighboring states. For example. Louisiana’s anti-pEbook Microeconomics (6E): Part 2
rice gouging law went into effect when Governor Bobby Jindal declared a state of emergency in response to the 2010 BP oil spill that endangered LouisaGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2 increased after a disaster, ranging from 10% to 25% of the prccmcrgcncy price. California passed its law in 1994 after the Northridge earthquake. Sixteen states prohibit -unconscionable” price increases. After Hurricane Katrina disrupted gasoline deliveries, Massachusetts Governor Mitt Romney estab Ebook Microeconomics (6E): Part 2lished a hotline for consumers to report evidence of price gouging. Connecticut, Georgia, Hawaii, Kentucky, Louisiana. Mississippi, and Utah have outrEbook Microeconomics (6E): Part 2
ight bans on price increases during an emergency. Georgia enacted its anti-price gouging statute after a 500-ycar flood in 1994. However, the Georgia General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2not have such laws.Governments pass anti-price gouging laws because they're popular. After the post-Katrina gas price increases, an ABC Now&'Washington Post poll found that only 16% of respondents thought that the price increase was justified,” 72.7% thought that “oil companies and gas dealers are t Ebook Microeconomics (6E): Part 2aking unfair advantage.’ 7.4% said both views wore true, and the rest hold other or no opinion.In Chapter 2, we showed that a national price control cEbook Microeconomics (6E): Part 2
auses shortages. However, does a binding price control that affects one state but not a neighboring state cause shortages? How does it affect prices aGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2er shocks often affect equilibrium price and quantity in more than one market. To determine the effects of such a change, we must examine the interrelationships among markets. In this chapter, we extend our analysis of equilibrium in a single market to equilibrium in all markets.We then examine how Ebook Microeconomics (6E): Part 2a society decides whether a particular equilibrium (or change in equilibrium) in all markets is desirable. To do so, society must answer two questionsEbook Microeconomics (6E): Part 2
: “Is the equilibrium efficient?” and “Is the equilibrium equitable?”For the equilibrium to be efficient, both consumption and production must be effiGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2icient only if goods cannot be reallocated across people so that at least someone is better off and no one is harmed. In this chapter, we show how to determine whether consumption is efficient.316Pareto efficient describing an allocation of goods or services such that any real location tiarrns al le Ebook Microeconomics (6E): Part 2ast one personChallenge: Anti-Price Gouging Laws 317Whether rhe equilibrium is efficient is a scientific question. It is possible that all members ofEbook Microeconomics (6E): Part 2
society could agree on how to answer scientific questions concerning efficiency.To answer the equity question, society must make a value judgment as tGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2at each person is the best— and possibly only legitimate—judge of his or her own welfare. Nonetheless, to make social choices about events that affect more than one person, we have to make interpersonal comparisons, through which we decide whether one person’s gain is more or less important than ano Ebook Microeconomics (6E): Part 2ther person’s loss, for example, in chapter 9 we argued that a price ceiling lowers a measure of total welfare given the value judgment that the well-Ebook Microeconomics (6E): Part 2
being of consumers (consumer surplus) and the well-being of the owners of firms (producer surplus) should be weighted equally. People of goodwill—and General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2areto principle (after an Italian economist, Vilfredo Pareto), to rank different allocations of goods and sen-ices for which no interpersonal comparisons need to be made. According to this principle, a change that makes one person better oil without harming anyone else is desirable. An allocation is Ebook Microeconomics (6E): Part 2 Pareto efficient il any possible reallocation would harm al least one person.Presumably, you agree that any government policy that makes all membersEbook Microeconomics (6E): Part 2
of society better off is desirable. Do you also agree that a policy that makes some members better off without harming others IS desirable? What aboutGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2y unlikely that all members of society will agree on how Io answer these questions—much less on the answers.The efficiency and equity questions arise even in small societies, such as your family. Suppose that your family has gathered together in November and even-one wants pumpkin pic. How much pie Ebook Microeconomics (6E): Part 2you get will depend on the answer to efficiency and equity questions: “I low can we make the pie as large as possible with available resources?” and “Ebook Microeconomics (6E): Part 2
I low should we divide the pie?” It is probably easier Io gel agreement about how to make the largest possible pic chan about how to divide it equitabGeneral Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2ntrated on that question because the equity question requires a value judgment. (Strangely, most members of our society seem to believe that economists are no better at making value judgments than anyone else.) In this chapter, we examine various views on equity.In this chapter, we examine five main Ebook Microeconomics (6E): Part 2 topics1General Equilibrium. Thô welfare analysis in Chapter 9 (involving gains and losses in consumer and producer surplus) changes when a governmentEbook Microeconomics (6E): Part 2
policy change or other shock affects several markets at once.2Trading Between Two People. Where two people have goods but cannot produce more goods, General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the Ebook Microeconomics (6E): Part 2ibrium is Pareto efficient, and any Pareto-efficient allocation can be obtained by using competition, given an appropriate income distribution.4Production and Trading. The benefits from trade continue to hold when production is introduced.5Efficiency and Equity. Because there are many Pareto-efficie Ebook Microeconomics (6E): Part 2nt allocations, a society uses its views about equity to choose among them.318 CHAPTER 10 General Equilibrium and Economic Welfare10.1partial-equilibrEbook Microeconomics (6E): Part 2
ium analysisan examination of equilibrium and changes *1 eqw-libnum in one market «1 isolationgeneral-equilibriumanalysisthe study ul how equilibrium General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do the General Equilibrium and Economic WelfareCHALLENGEAnti-Price GougingLawsCapitalism is the astounding belief that the most wickedest of men will do theGọi ngay
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