At The Same Time The Company Itself

At The Same Time The Company Itself

At The Same Time The Company Itself

Copyright © 2024 by Erin Callas

All rights reserved

TABLE OF CONTENTS

CHAPTER 1 : MARKET AND PRODUCER WELFARE

CHAPTER 2 : AGREE WITH YOUR POINTS

CHAPTER 3 : JOIN AND LEAVE THE COMPANY

CHAPTER 4 : BOTH GEORGE AND STACY NODDED IN AGREEMENT.

CHAPTER 5 : MOST INTERESTED.

CHAPTER 1 : MARKET AND PRODUCER WELFARE

Market transactions help both buyers and sellers benefit. The above article shows how to measure the benefits that pho eaters receive. This article talks about how economists measure the benefits that pho restaurants gain from market transactions.

We analyze the producer's benefit according to the pho supply curve in the figure below. The vertical axis represents the price (VND/bowl of pho) and the horizontal axis represents the quantity supplied (number of bowls of pho/given time). The supply curve tells us the number of bowls of pho that will be supplied at any given price. The higher the price, the more bowls of pho sold.

In a competitive market, producers all sell at the equilibrium price (P*). But the graph shows that some producers are willing to produce at a price lower than P*. Because of their greater efficiency, they can produce more quantity at a lower unit cost. These people will earn a producer surplus equal to the difference between the price at which they want to sell and the price at which they actually sell.

Total producer surplus is determined by the area above the supply curve, but below the price curve P' (the area is shaded on the graph). At the equilibrium price P* they will not produce more than the quantity Qs*. A lower price P' or a lower quantity Qs* both reduce producer surplus.

The next article defines net social benefit and demonstrates that it is maximized when the market is in equilibrium.

(Saigon Times Daily August 12, 2002)

13. Social Benefit (SB)

Market transactions make buyers and sellers better off. The last two articles analyzed consumer surplus (CS) and producer surplus (PS) in the market. This article explains social benefit (also economic welfare) as the sum of social benefits and PS, and demonstrates that social benefit is maximized at market equilibrium.

Market equilibrium is established at the price for which quantity demanded equals quantity supplied. On a market graph, the intersection of demand and supply gives the equilibrium point.

SB is the sum of the shaded areas on the graph.

Suppose that market quantity is Q1 instead of Q*. In this case, the price rises to P1, because that is what consumers are willing to pay. We see that some cs is transferred to PS but we also see that the small triangles of CS and PS between Q1 and Q* are lost. For quantities less than Q* SB is less than SB at Q*.

Now suppose that market quantity is Q2. For quantities greater than Q* the supply curve is above the demand curve. This indicates that the resource costs required to increase quantity from Q* to Q2 are greater than the value that consumers place on the additional units of the good. The SB at Q2 is calculated as the SB at Q* minus the area of the triangle ABC.

Social benefit is maximized at market equilibrium. In the discussion, we supposed that the market quantity deviated from the equilibrium quantity. In the next articles we will examine some reasons why that might occur, and we will discuss the consequences.

13. SOCIAL BENEFITS (SB)

Market transactions make both buyers and sellers benefit. The previous two articles analyzed consumer surplus (CS) and producer surplus (PS) in the pho market. This article shows that social benefit (also called economic welfare) is the sum of CS and PS and proves that social benefit is maximized when the market is in equilibrium.

Market equilibrium is established at the price where supply and demand are equal. On a market graph, the intersection of the supply and demand curves gives us the equilibrium point.

Social benefit is the total shaded area on the graph.

Suppose the quantity in the market is Q1 instead of Q*. The price then increases to P1 because this is the price that consumers are willing to pay. We see that part of CS is transferred to PS, but there are two small triangles belonging to CS and PS in about Q1, and Q* is lost. When the quantity of goods is lower than Q*, the corresponding social benefit will be lower than the social benefit at Q*.

Now suppose the quantity in the market is Q2. At any quantity greater than Q* we see that the supply curve lies above the demand curve. This shows that the resource costs required to increase quantity from Q* to Q2 are greater than the value of this additional quantity as perceived by consumers. SB at Q* is calculated as SB at Q* minus the area of triangle ABC.

Social benefits are maximized at market equilibrium. In the analysis, we have assumed that the quantity in the market can deviate from the equilibrium quantity. In the following articles we will consider the causes and results of this phenomenon.

(Saigon Times Daily August 19, 2002)

14. Let's Not Forget The Full Costs

The recent Conference on Sustainable Development in South Africa highlighted the fact that in efforts to achieve higher rates of growth, countries have often found the cost of this goal to be damage to the environment. The question now being asked is what can be done to reverse this trend and why can't markets allocate resources efficiently.

The answer lies in understanding the concept of externalities. In the case of an externality, some costs (negative externalities) or benefits (positive externalities) of the use of a resource fall on individuals or groups that are external to the market transaction.

A simple example of negative externalities is higher pollution and noise levels that have resulted from the proliferation of motorbikes. These negative factors are felt by everyone regardless if they own a motorbike. Thus, the full costs of a motorbike are not reflected in the price paid by consumers.

While consumers' decisions are based on the market price (the private cost), resources will only be allocated efficiently if the full costs, the private plus social costs, are taken into account.

Since the full costs are greater than that reflected in the market, resources will tend to be over allocated. Thus, too many motorbikes are purchased and society is burdened with the environmental hazards.

How to reallocate resources to better reflect the full costs of the production is an issue currently under debate by holding. The next article will provide more details on some economic solutions.

14. DON'T FORGET THE CONCEPT OF TOTAL COST

The recent Sustainable Development conference in South Africa highlighted the fact that in their quest to achieve high growth, countries have forgotten the cost of this goal in terms of environmental damage. The question now is what needs to be done to reverse the above trend and why the market cannot allocate resources effectively.

The answer lies in understanding the concept of externalities. Externalities occur when some of the costs (negative externalities) or benefits (positive externalities) of using a resource fall on individuals or groups not participating in the market transaction.

A simple example of a negative externality is the level of pollution and noise caused by the rapid increase in the number of motorbikes. The above negative factors affect everyone whether they have a motorbike or not. Therefore, the overall cost of a motorcycle is not fully reflected in the price consumers pay.

While consumer decisions are based on market prices (private costs), resources are only allocated efficiently if total costs are considered, i.e. private costs plus social costs. .

Because total costs are greater than those shown in the market, resources tend to be over-allocated. Therefore, the more motorbikes are purchased, the more environmental dangers society must suffer.

Reallocating resources to more accurately reflect the full cost of a product is an issue being debated by policymakers. The next article will talk more about economic solutions.

(Saigon Times Daily September 16, 2002)

15. Internalizing The Externality

When negative externalities occur, full costs of production are not reflected in the market. This creates a divergence between the private cost and social cost resulting in resources being over allocated to the sector involved.

One common remedy to reduce consumption of a good that has negative externalities is to increase the cost of production so full costs - private cost of production plus the cost to society due to the externalities - are reflected in the market. This can be done through policies such as imposing taxes or restricting the use of a good. An illustration of such policies is the recent proposal to double the consumption tax on motorbikes and create off-limits zones in a number of downtown streets in HCMC.

To better understand the effect of a tax policy, consider the diagram below. The supply curve, Sp, represents die private costs of production and does not include the negative externalities. Curve Dp is market demand for motorbikes.

The market solution would result in Qm motorbikes being purchased at price of Pm.

However, if a policy such as a tax is implemented to internalize the externalities the supply curve will shift to the left. The new supply curve will be St. This results in a lower quantity of motorbikes being consumed (QT) and, hence, lower level of air and noise pollution. The tax revenue could also be used to pay for improving air quality or health-related expenses of motorbike use.

15. INTERNALIZATION OF EXTERNALITY

When negative externalities occur, the full cost of production is not reflected in the market. This creates a gap between private and social costs that results in resources being over-allocated to the relevant industry.

A common measure to limit consumption of a good, when this consumption causes negative externalities, is to increase production costs. The aim is for the full cost – including the private cost of production plus the cost to society of externalities – to be reflected in the market. This measure can be implemented through policies such as taxation or consumption restrictions. For example, a recent proposal suggested that motorbike consumption tax should be doubled and motorbike traffic should be limited on some central roads in Ho Chi Minh City.

To better understand the impact of a tax policy, let's look at the graph above. The supply curve Sp represents the private cost of production and does not include negative externalities. Dp road is the motorbike market bridge. If we follow the market solution, the quantity of motorbikes sold is Qm at the price Pm.

However, if a tax policy is implemented to internalize externalities, the supply curve will shift to the left. The new position of the supply curve is St. The result is less motorcycle consumption (QT), leading to a lower Pollution and noise levels are also lower. Taxes collected can be used to improve air quality or cover medical costs related to motorbike use.

(Saigon Times Daily September 23, 2002)

16 . Marginal Analysis: Why the farmer should care, and everyone else too

In economics and management theories, marginal analysis plays a crucial role. This is one of the basic approaches in business decision-making.

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