Equity and Efficiency in Economics.mp4

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“Basic concepts in economics. We want to keep in mind particularly as we investigate different different situations or problems and possible solutions. We want to discern the difference between efficiency equity. That is arguments to make an economic system more efficient versus arguments to make an economic system more equitable efficiency generally means operating at the lowest possible cost for whatever.

It is that you re producing whatever output. You are creating we argue in microeconomics that free competitive markets would achieve great efficiency. They would through competition as the regulator. They would keep prices in the market.

Relatively low and these low prices would force firms to operate at minimum costs. So that you and i as a consumer are paying a company extra in the price because they re inefficient. They re sloppy. They re they re not very cost conscious in their operations efficiency is certainly a goal.

We want to make the very best use of our resources. We can we don t want to waste them on inefficient means of production or inefficient delivery systems..

These arguments for efficiency are a major part of what is behind. Many proposals to privatize the provision of government services. Quick example. Suppose that a city provides for trash pickup for its citizens and the government then maybe buys the trucks.

The city government pays the employees to go around and pick up the trash. Many times. It s argued that because that government entity has no competition. It has no real need to keep its costs at their lowest point.

And so it will become inefficient by allowing its costs to rise and passing that along to the consumers. The taxpayers and the way of higher fees and the way to eliminate that is to put a private company in there and let them pick up the trash. And maybe even compete against other companies for a one year two year contract. So that if they keep their costs low and therefore the price alone.

They get a renewal of the contract and that sort of competition keeps prices low to the consumers and creates a more efficient system privatization as opposed to the government provision of a service or product. So those are the efficiency arguments we want to keep prices low and costs low..

We want companies to be efficient and not waste their resources on the other side there are equity arguments equity. Meaning fair equitable fairness is it fair for example that everybody pay a 10 tax on their income and then some people will say that s absolutely fair that s 10 for everybody. But others will say that if you are a very low income 10 of your income is a real bite. It really hurts in your very survivability whereas 10.

When you re multi millionaire. That doesn t threaten your survival. The same way so maybe a 10 percent tax isn t equitable isn t fair. But immediately when we get into equity arguments.

What are we into also we re into normative disagreements. We re into normative or opinion. Based statements. So with every issue.

We may argue the equity. We may argue the efficiency..

We but we ought at least to consider both the equity issues and the efficiency issues in any sort of economic problem. Or proposed solution all right now our free and competitive markets. Equitable. Do they provide a fair treatment of all consumers.

And again in equity issues. We get into opinions and some people will say well the problem with free markets is that whatever the price a lot of times people need that product or service mix. If we can t afford it because their incomes too low is that fair let s take education. Should government provide education is that an efficient use of our resources.

Or is education better provided by private schools. And if it s provided by private schools will it be provided at a price that the lower income elements of society can afford to pay. And if they can t is that fair if they are deprived from educating their children. Because their incomes aren t high enough is that fair and then we step in with all kind of ways to offset that to subsidize low income groups.

In fact. What we see that a lot of times government provides..

The education for free through taxpayer dollars. Is that fair all right on what basis do you raise your taxes should we tax you on your property. And how much you own or would it be more equitable warfare. Detach you on your income or should we tax you on the money you spend with a sales tax.

What s the most equitable tax out there a sales tax. The property tax and income tax and again when you get into equity arguments. You get into opinions. Let s go get bogged down in a lot of different opinions and arguments.

But simply recognize the arguments for what they are and never fail to address also the efficiency issues. Thank you ” ..

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