List the two assumptions that underlie the conclusion that free markets are efficient. Explain how these assumptions either do or do not apply to an industry of your choosing.
Pg 150
The two assumptions that underlie the conclusion that free markets are efficient.
The number one assumption is that the markets are imperfect competition with each other. This means that a company does not have enough market power to control the quantity or price of a good. The second assumption is that the outcome of what happens to the market only matters to who is participating in the market. If the market has side effects on a third party these are called externalities. Depending on these externalities the welfare of the market activity can change especially …show more content…
This does not hold true for the De Beers diamond mining in the country of Botswana, Africa ( full article I am using can be found here http://cpreview.org/2014/04/diamonds-arent-forever/ ) De Beers diamonds brought this country a great deal of prosperity but it also created some rather bad externalities for this country the first of the externalities is the monopolization of Water Supplies for money purposes since this country is often plagued by drought the people of this land rely on groundwater and due to the fact De Beers lobbyist have course the government officials to supply them with a guaranteed percentage of water reserves in this way decrease in the supply for the general population the neck externalities is the diamond mining operation has eliminated potential grazing land for cattle this happen due to the company for sale owners of cattle Westward and causing over grazing problems in the western part of the country. The next and most severe externality De Beers has caused is the abuse of Human Rights of the indigenous people of the country more on this issue can be found in the article at the attached website. .
2. What happens to customer and producer surplus when the sale of a good is taxed? How does the change in customer and producer surplus compared to the tax revenue? Page 158, 163
A. What happens to customer and producer surplus when the sale of a good is taxed?
The customer and producer surplus will shrink when the sale of a good is taxed. The shrinkage would depend on the size of the tax. This would also dictate how much deadweight loss would be created from the tax.
B. How does the change in customer and producer surplus compare to the tax
Pg 150
The two assumptions that underlie the conclusion that free markets are efficient.
The number one assumption is that the markets are imperfect competition with each other. This means that a company does not have enough market power to control the quantity or price of a good. The second assumption is that the outcome of what happens to the market only matters to who is participating in the market. If the market has side effects on a third party these are called externalities. Depending on these externalities the welfare of the market activity can change especially …show more content…
This does not hold true for the De Beers diamond mining in the country of Botswana, Africa ( full article I am using can be found here http://cpreview.org/2014/04/diamonds-arent-forever/ ) De Beers diamonds brought this country a great deal of prosperity but it also created some rather bad externalities for this country the first of the externalities is the monopolization of Water Supplies for money purposes since this country is often plagued by drought the people of this land rely on groundwater and due to the fact De Beers lobbyist have course the government officials to supply them with a guaranteed percentage of water reserves in this way decrease in the supply for the general population the neck externalities is the diamond mining operation has eliminated potential grazing land for cattle this happen due to the company for sale owners of cattle Westward and causing over grazing problems in the western part of the country. The next and most severe externality De Beers has caused is the abuse of Human Rights of the indigenous people of the country more on this issue can be found in the article at the attached website. .
2. What happens to customer and producer surplus when the sale of a good is taxed? How does the change in customer and producer surplus compared to the tax revenue? Page 158, 163
A. What happens to customer and producer surplus when the sale of a good is taxed?
The customer and producer surplus will shrink when the sale of a good is taxed. The shrinkage would depend on the size of the tax. This would also dictate how much deadweight loss would be created from the tax.
B. How does the change in customer and producer surplus compare to the tax