【正文】 t the rent ceiling, the quantity of housing demanded exceeds the quantity supplied. There is a shortage of housing. A Housing Market with a Rent Ceiling 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley It’s Not Fair If the Rules Aren’t Fair The idea that ―it’s not fair if the rules aren’t fair‖ is based on the symmetry principle. Symmetry principle is the requirement that people in similar situations be treated similarly. Is the Competitive Market Fair? 169。 2020 Pearson AddisonWesley It’s Not Fair if the Result Isn’t Fair The idea that only equality brings efficiency is called utilitarianism. Utilitarianism is the principle that states that we should strive to achieve ―the greatest happiness for the greatest number.‖ Is the Competitive Market Fair? 169。 2020 Pearson AddisonWesley High Transactions Costs Transactions costs are the opportunity cost of making trades in a market. To use the market price as the allocator of scarce resources, it must be worth bearing the opportunity cost of establishing a market. Some markets are just too costly to operate. When transactions costs are high, the market might underproduce. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley An apartment owner would provide an external benefit if she installed an smoke detector. But she doesn’t consider her neighbor’s marginal benefit and decides not to install the smoke detector. The result is underproduction. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Sources of Market Failure In petitive markets, underproduction or overproduction arise when there are ? Price and quantity regulations ? Taxes and subsidies ? Externalities ? Public goods and mon resources ? Monopoly ? High transactions costs Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley The Invisible Hand Adam Smith’s ―invisible hand‖ idea in the Wealth of Nations implied that petitive markets send resources to their highest valued use in society. Consumers and producers pursue their own selfinterest and interact in markets. Market transactions generate an efficient—highest valued—use of resources. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley The red areas show the cost of producing the pizzas sold. The producer surplus is the value of the pizza sold in excess of the cost of producing it. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Max is willing to produce the 50th pizza for $10. Max’s producer surplus from the 50th pizza is the price minus the marginal cost, which is $5. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Max and Mario are the only producers of pizza. At $15 a pizza, the quantity supplied by Mario is 50 pizzas. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Benefit, Cost, and Surplus Supply and Marginal Cost Firms are in business to make a profit. To make a profit, firms must sell their output for a price that exceeds the cost of production. Firms distinguish between cost and price. 169。 2020 Pearson AddisonWesley At $1 a slice, Lisa buys 30 slices. So her consumer surplus is the area of the green triangle. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $1 a slice, the quantity demanded by Lisa is 30 slices and by Nick is 10 slices. The quantity demanded by all buyers in the market is 40 slices. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Benefit, Cost, and Surplus Demand, Willingness to Pay, and Value Value is what we get, price is what we pay. The value of one more unit of a good or service is its marginal benefit. We measure value as the maximum price that a person is willing to pay. But willingness to pay determines demand. A demand curve is a marginal benefit curve. 169。 2020 Pearson AddisonWesley FirstCome, FirstServed A firste, firstserved allocates resources to those who are first in line. Casual restaurants use firste, first served to allocate tables. Supermarkets also uses firste, firstserved at checkout. Firste, firstserved works best when scarce resources can serve just one person at a time in a sequence. Resource Allocation Methods 169。 2020 Pearson AddisonWesley Market Price When a market allocates a scarce resource, the people who get the resource are those who are willing to pay the market price. Most of the scarce resources that you supply get allocated by market price. You sell your labor services in a market, and you buy most of what you consume in markets. For most goods and services, the market turns out to do a good job. Resource Allocation Methods 169。5 EFFICIENCY AND EQUITY 169。 2020 Pearson AddisonWesley Resource Allocation Methods Scare resources might be allocated by ? Market price ? Command ? Majority rule ? Contest ? Firste, firstserved ? Sharing equally ? Lottery ? Personal characteristics ? Force How does each method work? 169。 2020 Pearson AddisonWesley Contest A contest allocates resources to a winner (or group of winners). The most obvious contests are sporting events but they occur in other arenas: For example, The Oscars are a type of contest. Contest works well when the efforts of the ―players‖ are hard to monitor and reward directly. Resource Allocation Methods 169。 2020 Pearson AddisonWesley Force Force plays a role in allocating resources. For example, war has played an enormous role historically in allocating resources. Theft, taking property of others without their consent, also plays a large role. But force provides an effective way of allocating resources—for the state to transfer wealth from the rich to the poor and establish the legal framework in which voluntary exchange can take place in markets. Resource Allocation Methods