- •Examination questions for discipline Microeconomics
- •Production Efficiency
- •The ppf and Marginal Cost
- •Markets and Prices
- •The law of demand
- •The Factors that Influence the Elasticity of Supply
- •New Ways of Explaining Consumer Choices
- •Consumption Possibilities
- •Work-Leisure Choices
- •The Firm and Its Economic Problem
- •Markets and the Competitive Environment
- •Product Curves
- •Short-Run Cost
- •Marginal Cost and Average Costs
- •Marginal Cost and Average Costs
- •The Long-Run Average Cost Curve
- •Perfect competition
- •What is Perfect Competition?
- •The Firm’s Output Decision
- •Output, Price, and Profit in the Short Run
- •Price Discrimination
- •Marginal Revenue and Elasticity
- •63. Single-Price Monopoly and Competition Compared
- •Monopoly Regulation
- •Monopolistic Competition and Perfect Competition comparison
- •What is Oligopoly?
- •Two Traditional Oligopoly Models
- •Oligopoly Games: An Oligopoly Price-Fixing Game
- •Antitrust Law
- •Classifying Goods and Resources
- •Public Goods
- •Common Resources
- •The Anatomy of Factor Markets
- •The Demand for a Factor of Production
- •Capital and Natural Resource Markets
- •Nonrenewable Natural Resource Markets
- •Property Rights and the Coase Theorem
- •Achieving an Efficient Outcome
Achieving an Efficient Outcome
There are three different methods that society can use to achieve the efficient outcome for common resources:
Property rights: Property rights can be assigned to the common resource. The owner then will receive the marginal benefit of using the resource. The resource will be used efficiently and not overused. However, assigning property rights to some resources, such as the fish in the ocean, is not always feasible.
Production quotas: Quotas can be set for the efficient total catch, with the total divided among all users. However, it is in every user’s self-interest to cheat on the quota, so the quota might be ineffective. In addition, the marginal cost of using the resource varies across users, so an equal allocation of quotas generates an inefficient outcome.
Individual transferable quotas: An individual transferable quota scheme might be used. An individual transferable quota (ITQ) is a production limit that is assigned to an individual who is free to transfer the quota to someone else. Less efficient users with higher marginal costs are willing to sell their quotas to more efficient harvesters who are willing to buy them. The price of the quota will equal the difference between the marginal private benefit of the quota minus the marginal cost of using the quota. Users with the quotas will use the resource until the marginal private benefit (the average catch) equals the private marginal cost plus the price of the quota. If the quota was set at the efficient quantity, the equilibrium is efficient.
Individual transferable quota (ITQ)
An individual transferable quota (ITQ) is a production limit that is assigned to an individual who is free to transfer the quota to someone else. Less efficient users with higher marginal costs are willing to sell their quotas to more efficient harvesters who are willing to buy them. The price of the quota will equal the difference between the marginal private benefit of the quota minus the marginal cost of using the quota. Users with the quotas will use the resource until the marginal private benefit (the average catch) equals the private marginal cost plus the price of the quota. If the quota was set at the efficient quantity, the equilibrium is efficient.