Chapter 2 Efficiency, Market & Government
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1 Chapter 2 Efficiency, Market & Government Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)
2 Introduction Assume that you have not much idea about economics. If I asked you what is economics? What you will tell.
3 Introduction Most will say economics is all about Money Counting Its very hard subject so just forget it.
4 Introduction Economics is the study of the use of scare resources that have alternative uses.
5 Positive & Normative Economics Any Idea on this terminology?
6 Positive & Normative Economics Positive Economics Normative Economics Fact Opinion What is? What should be? Can prove whether statement is correct or wrong. Can t prove whether statement is correct or wrong.
7 Positive Economics Examples What the gender?
8 Positive Economics Examples What the gender?
9 Normative Economics Examples Is girl is cooler than boy?
10 Positive & Normative Economics This about these statements now. State whether that is positive or normative economic statements.
11 Positive & Normative Economics Government should provide basic healthcare for all citizen in Maldives.
12 Positive & Normative Economics It s a normative statement
13 Positive & Normative Economics Government funded healthcare increases public expenditure.
14 Positive & Normative Economics Its positive statement because you can measure this expenditure by looking into data.
15 Positive & Normative Economics Higher interest rates cause people to save more.
16 Positive & Normative Economics Positive statement
17 Positive & Normative Economics Unemployment is more harmful than inflation.
18 Positive & Normative Economics Normative statment
19 Positive & Normative Economics Lots of parteys are there in Male due to no employment opportunity.
20 Positive & Normative Economics Normative statment
21 Positive & Normative Economics Government of Maldives should cut taxes in half to increase disposal income level of citizen.
22 Positive & Normative Economics Positive statement
23 Positive & Normative Economics Tax cuts would improve the quality of life for every citizen in Maldives.
24 Positive & Normative Economics Normative statement
25 Market Efficiency An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources. When we talk about market efficiency the theory that we discuss in economics is Pareto Efficiency.
26 Pareto Efficiency Vilfredo Pareto ( ) Italian Economist
27 Pareto Efficiency Pareto improvement: An allocation can be Pareto improved if there exists another allocation such that at least one person is better off and nobody is worse off. Pareto Efficiency: An allocation is Pareto efficient if no Pareto improvement is possible.
28 Pareto Efficiency - Example Lets take example of Apple & Pears.
29 Pareto Efficiency - Example Is this Pareto Efficient
30 Pareto Efficiency - Example
31 Pareto Efficiency Another Example
32 Pareto Efficiency Another Example One way to allocate chocolate bar is to allocate the whole chocolate bar to Ann.
33 Pareto Efficiency Another Example
34 Pareto Efficiency Another Example
35 Pareto Efficiency Another Example Is this allocation Pareto Efficient. Question is can we find Pareto Improvement. This allocation is not Pareto Efficient because we have wasted rather we can make make Ann & Bob more better off by giving half of wasted chocolate bars
36 Production Possibility Frontier
37 Production Possibility Frontier Calculate opportunity cost for the following: A to D B to C E to D C to A
38 Production Possibility Frontier Calculate opportunity cost for the following: A to D = 15 Hats B to C = 4 Hats E to D = 1 Video C to A = 2 Videos
39 Market Failure
40 Market Failure
41 Types of Market Failure
42 Types of Market Failure
43 Causes of Market Failure Monopoly Power Single stakeholders control the market.
44 Causes of Market Failure Asymmetric Knowledge Supplier has more knowledge than consumers & vice versa.
45 Causes of Market Failure Externalities These are the external cost or the benefits which occur during economic activity which are not considered by the buyer and the sellers. External factors cost to third party not buyers or the sellers. Eg: Air pollution.
46 Causes of Market Failure Missing Market Market that are being ignored. Eg: Public good & services such as streetlight.
47 Questions & Answers What else you want to know?
48 Thank You Ibrahim Sameer Seek knowledge from cradle to grave
Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)
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