economic policy and market regulation part 2
DESCRIPTION
Economic Policy and Market Regulation Part 2. Dr. Stefan Kooths BiTS Berlin (winter term 2013/2014) www.kooths.de/bits-ep. Outline. Introduction and Overview Market Mechanisms and Government Interventions Market-based coordination and welfare economics Price controls Taxes - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/1.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 1
Economic Policy and Market Regulation
Part 2
Dr. Stefan KoothsBiTS Berlin
(winter term 2013/2014)www.kooths.de/bits-ep
![Page 2: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/2.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 2
Outline
1. Introduction and Overview2. Market Mechanisms and Government
Interventions Market-based coordination and welfare
economics Price controls Taxes
3. Externalities and Public Goods4. Competition Policy and Regulation5. Ordoliberalism and the Social Market Economy6. Summary: The Key Lessons Learnt
![Page 3: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/3.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 3
Pareto efficiency
![Page 4: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/4.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 4
Conditions for „perfect“ competition (1/2)
Atomistic market structure» Infinite number of buyers and sellers (no market power)» Price taker/autonomous decisions
Rationality» Consumers/households: Utility maximization» Producers/enterprises: Profit maximization» Self-interest with fair means (no opportunistic behavior)
Homogenous goods (products and factors)» No personal/spatial/physical preferences» No indivisibility
Stationary world» Given resources, constant technology» No growth analysis, no process/product innovations
![Page 5: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/5.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 5
Conditions for „perfect“ competition (2/2)
World without frictions» Zero transaction costs (no costs for making an exchange of goods)» Perfect factor mobility (unrestricted market entry/exit)
Freedom of choice» No involuntary/compulsory transactions» No technological external effects
Perfect information/total transparency» Full knowledge/free information about alternatives and prices» No uncertainty
Infinite speed of response» Focus on equilibrium analysis» Transactions only at equilibrium prices (no “false” trading)
![Page 6: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/6.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 6
2-2-2 model: Two consumers, two products, two factors
![Page 7: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/7.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 7
Criteria 1: Efficiency of exchange(Edgeworth box and contract curve)
![Page 8: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/8.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 8
Criteria 2: Efficiency of factor use(efficiency line and production-possibility frontier)
![Page 9: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/9.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 9
Criteria 3: Optimal composition of production(consumer sovereignty)
![Page 10: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/10.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 10
Equilibrium: Market clearing and social welfare
![Page 11: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/11.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 11
Fundamental theorems of welfare economics
Theorem 1:Competitive markets tend toward an efficient allocation of resources (= fulfill criteria 1 to 3)
Theorem 2:Any particular Pareto-efficient outcome can be achieved via lump-sum wealth redistributions and then letting the market take over
![Page 12: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/12.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 12
The markets’ navigation system:Prices as universal information carriers
![Page 13: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/13.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 13
Static and dynamic efficiency
![Page 14: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/14.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 14
Primary income distribution
![Page 15: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/15.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 15
Flexible adjustment to changing conditions
![Page 16: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/16.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 16
Technological progress
![Page 17: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/17.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 17
“Perfect” competition and reality:Nirvana critique and the theory of second best
![Page 18: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/18.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 18
Market prices, revealed preferences and the impossibility of calculation under Socialism (Mises)
![Page 19: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/19.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 19
Potential market failures and economic policy
![Page 20: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/20.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 20
Outline
1. Introduction and Overview2. Market Mechanisms and Government
Interventions Market-based coordination and welfare economics Price controls Taxes
3. Externalities and Public Goods4. Competition Policy and Regulation5. Ordoliberalism and the Social Market Economy6. Summary: The Key Lessons Learnt
![Page 21: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/21.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 21
Price ceilings and market outcomes (example: rent controls)
![Page 22: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/22.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 22
Price floors and market outcomes (example: minimum wages)
![Page 23: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/23.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 23
Escaping price controls
![Page 24: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/24.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 24
Outline
1. Introduction and Overview2. Market Mechanisms and Government
Interventions Market-based coordination and welfare economics Price controls Taxes
3. Externalities and Public Goods4. Competition Policy and Regulation5. Ordoliberalism and the Social Market Economy6. Summary: The Key Lessons Learnt
![Page 25: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/25.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 25
Taxes on sellers
![Page 26: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/26.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 26
Taxes on buyers
![Page 27: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/27.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 27
Elasticity and tax incidence: Who really pays the tax?
![Page 28: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/28.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 28
Excess burden (deadweight loss) of taxation
![Page 29: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/29.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 29
The Laffer curve: Tax rates vs. tax revenues
![Page 30: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/30.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 30
Administrative burden
![Page 31: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/31.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 31
Marginal tax rates vs. average tax rates
![Page 32: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/32.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 32
Lump-sum taxes
![Page 33: Economic Policy and Market Regulation Part 2](https://reader036.vdocuments.net/reader036/viewer/2022062410/56816021550346895dcf22d2/html5/thumbnails/33.jpg)
KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 2 33
Principles of taxation: Benefits vs. ability-to-pay
Benefits principle Ability-to-pay principle
» Horizontal equity» Vertical equity