CHAPTER 4 : MARKET EFFICIENCY MARKER EFFICIENCY

Focus questions :
C1. Các nhà kinh tế có nghĩa là gì khi họ nói nền kinh tế có hiệu quả không ?
C2.Điều kiện gì là thỏa mãn nếu thị trường hiệu quae
C3.

1.Abstract : WELFARE ECONOMICS AND PARETO EFFICIENCY

The intuition behind adamsmith's insight is simple: if there is some good and service that
individuals appreciate but it is not produced then they are willing to pay for something.
Entrepreneurs, studying their interests, are always looking for opportunities. If the value of a
good exceeds the cost of production, the potential profit and the entrepreneur can produce the
good. Thus, if the way to produce the good is cheaper than the way it is being used, the company
who discovers this method will cut competitive value and make a profit. The study of the profits
of businesses is to find out how to produce more efficiently and better goods to serve consumers.
From this point of view there is no government commission body that needs to determine
whenever a good should or should not be produced. If it is to be produced it must meet the test of
the market i.e. if the product is to be manufactured. Employees are willing to overpay the cost of
production. Without any observation the government committee needs to check whether a
particular company is productive: competition will eliminate inefficient production.
There is a broad consensus among economists that competitive effort leads to effective
agreement and competition leads to highly effective agreement that competition actually
provides the important motivator. important for the innovation process. Over the past half-
century, however, economists have recognized that there are many important cases where
markets don't work more efficiently than fervent advocates in free markets suggest. The
economy has experienced through massive unemployment and idle resources. The Great
Depression in 1930 left many people wanting unemployment, pollution suffocated many large
cities, and urban decay affected many others (population has choked many of our larger cities
and urban decay has). set in on others).
There are two important results describing the social welfare relationship between market
competition and pareto efficiency. There are results known as the fundamental theorem of social
welfare.
The first theorem tells us that if the economy is competitively efficient (some other conditions
are satisfied) it is called pareto efficient.
2.Market efficiency and role government
Economists always have to consider aspects of efficiency, efficiency perato
Firstly, the economy must be be change efficient, whatever goods produced must be valued by
the individuals who use them
Secound, there must be productive efficiency, the production of goods increase and does not
reduce the interest of others
Third, the economy must achieve the effective product mix so that the goods are produced
correspondingly to the desired individuals.
Efficiency from perspective of a singer market :
Efficiency requires that the marginal rate associated with producing one more unit any goods
equal its marginal cost if the marginal benefit exeeds the marginal cost society would gain from
producing more of the good if the marginal benefit was less than the marginal cost society would
gain from reducing production of the good.
The utility possibilities cure
The utility possibilities cure gives the maximum lever of utility that invidual can achieve given
the level of utility of the other individual.
The first fundamental theorem of welfare economics say that a competitive economy operates
along the utility possiblilities frontier. The second fundamental theorem of welfare economics
say that wen can attain any point along the utility possibilities frontier using competitive
markets, provided we redistribute initial endowments appropriately.
Exchange efficiency : The marginal rate of substitution between any two goods must be the same
for all individuals
Product efficiency : The marginal rate of technical substitution between any two inputs must be
the same for all firms
Product mix efficiency : The marginal rate of transformation must equal marginal rate of
substitution.
CHAPET 5 : PUBLIC CHOICE
1.Public choice theory.
public choice theory : public choice theory is the application of economics to the study of
state administration management. The economic study of none market or simple is the
application of economics to political science.
Some public services can be effectively delivered by organizations forms.in oider to
improve the performance of public administration, remedies must to be sought more and
more in private market conditions, where incentive structures and systems exist to
provide public service provision. The monopoly of the bureaucracy must reduced by
exploring sources of service providers private public service.
Bureaucracy needs to be reduced by cutting gorvernment payrolls and transferring many
functions for private agencies.By breaking the monopy of the state as provider and by
introducing choice and participation, public choice theory seek ro redefine the power
between citizens and the state. Under the influence of public choice theory, 
it can be seen that role of the private sector has expanded the state sector has shrunk both
in direct management and through the privatization of public enterpries. In some sectors
such as communication and transportation, aviation, television, energy production and
distributions oil and gas exploration and marketing.
The intersection of the mand and the supply curves is equilibrium of the private market.
when the demand of goods increases, the mand curve for that good shifts creating an
incentive for firms to produce more, and vice versa then prices falls.A competitive
economy is the rational allocation of resources. Decisions about the allocation of
resources in the public sector are made. Individually elected representatives vote on the
public budget and money. will be spent by the administrative authority. Members of
parliament always have to define two issues first they have to determine the views of
their constituents second the views can be different so they have to decide how important
it is to nominate each of the different positions.
2.PROBLEM OF INCOME DEVELOPMENT
there are particular problems in motivating individuals to honestly disclose their
preferences in relation to public goods. If what they pay does not depend on their answer,
there is a tendency to demand more: a person generally wants more public goods as long
as he does not have to pay for them. However, if what an individual says is related to the
amount of money he or she has to pay, there is an incentive for the individual to pretend
that they are entitled to much less good than they actually do - individual knows that the
answer will have a negligible effect on the total amount offered and he or she wants to be
a freelance driver.1 In private decisions, the decision maker knows his or her preferences
well. . However, in public decisions, decision makers must clearly define the preferences
of those making decisions on their behalf. This is the first important difference between
public and private resource allocation.

3.PERSONAL OFFER FOR PUBLIC GOODS

For public goods, the richer often pay a higher price. The taxable price is the additional
amount an individual must pay when government spending increases by one dollar. The
taxable price multiplied by the total government spending will equal the amount paid by
the individual. The higher tax rates themselves mean that richer people will want lower
spending on public goods. However, with income efficiency leading to higher wanted
demand, and price efficiency leading to lower wanted demand, the net effect is not clear.
4.HOW TO CHOOSE THE PERSONAL “THE BEST” GOVERNMENT COST.
The individual's most preferred level of government spending occurs at the tangent line
between the budgetary limit and the indifference curve. (A) As noted, with proportional
taxation, individuals with lower incomes are subject to a lower tax rate (variable budget
constraints). Income and substitution effects work in opposite directions, so it is not clear
whether the most preferred level of government spending is higher or lower. (B) As
noted, with uniform taxation, all individuals are subject to the same taxable price, so
there is only an income effect. Rich people prefer higher spending. (In this example, the
rich and the poor are assumed to have the same indifference - preferences - curves, and
differ only in budget constraints.)
5.UTILITY DEPENDS ON GOVERNMENT EXPENDITURE 
Utility is maximized at the tangent point between the indifference curve and the budget
constraint. The further away the actual expenditure is from the preferred expenditure, G*,
the lower the utility.
tax rates are lower, and therefore their preferred spending level, GP, is higher. However,
poorer people have lower incomes, and with lower incomes, they demand fewer public
and private goods. The net effect is not clear.