17-03-2003 04:41									#91
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I study my economics textbook. Missing optimal production is in no why a 'market failure'. If that were the case you'd label all economic history has a 'market failure', because I doubt anyone has hit optimal production (and how do you calculate total costs and benefit).

I'm sorry, but anyone that asserts that if any corporation makes money (making benefits outweigh costs) then the market has failed is a total and utter loon.

	17-03-2003 04:46									#92
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quote: Originally posted by Imran Siddiqui I'm sorry, but anyone that asserts that if any corporation makes money (making benefits outweigh costs) then the market has failed is a total and utter loon.

It's marginal costs and mariginal revenue. The firm produces to a point where marginal costs equals marginal revenue. That's the point of maximum profit. The same goes for marginal social costs and marginal social benefits. There is optimal production when they are equal. That's the point of maximum total social benefit.

	17-03-2003 04:55									#93
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And once again for 'optimal production', HOW do you determine marginal social costs and marginal social benefits? It is just about impossible.

What is the cost of pollution? What is the benefit of oil based transportation? How do you put numbers on that?

	17-03-2003 04:56									#94
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and who is using models now? besides, MC=MR= maximum profits only in perfect competition, which of course only exists in the stock market.

	17-03-2003 05:04									#95
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quote: Originally posted by Imran Siddiqui And once again for 'optimal production', HOW do you determine marginal social costs and marginal social benefits? It is just about impossible.

It's about the same as calculating these things for a firm. It's not an exact science, but if its obvious that you need to make a change you should. Firms mostly use projections and trial an error. Public finance works the same way. Some costs you can calculate accurately and some you can't.

quote: Originally posted by Imran Siddiqui What is the cost of pollution?

Some of this can be calculated. For example, calculating the cost of cleaning up an oil spill can be calculated. Air polution causes health problems. That can be calculated. Some of it you have to use the democratic process. Most people don't like to breath dirty air so they vote for tax on production that causes pollution.

quote: Originally posted by Imran Siddiqui What is the benefit of oil based transportation?

Forget about this. It's not an externality.

	17-03-2003 05:08									#96
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quote: Originally posted by Lawrence of Arabia and who is using models now? besides, MC=MR= maximum profits only in perfect competition, which of course only exists in the stock market.

I'm just teaching Imran a bit of neo-classical theory. In reality I now that it doesn't work. We can't calculate it like that. We need to use these terms however.

btw, (according to neo-classical economics) all firms maximize profits, not only competitive firms.

	17-03-2003 05:09									#97
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You might be riding with OBL and G.W Bush together in the backseat... haven't you thought of that?

	17-03-2003 05:10									#98
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quote: And once again for 'optimal production', HOW do you determine marginal social costs and marginal social benefits? It is just about impossible. What is the cost of pollution? What is the benefit of oil based transportation? How do you put numbers on that?

exactly. the same thing with firms. they usually dont know what the additional cost for producing an extra unit of goods is so they use the next best thing: average costs.

	17-03-2003 05:11									#99
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quote: Originally posted by OneFootInTheGrave You might be riding with OBL and G.W Bush together in the backseat... haven't you thought of that?

Very much so

	17-03-2003 05:13									#100
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quote: Originally posted by Lawrence of Arabia exactly. the same thing with firms. they usually dont know what the additional cost for producing an extra unit of goods is so they use the next best thing: average costs.

Your making an excellent argument against neo-classical theory. Please continue.

	17-03-2003 05:13									#101
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quote: Originally posted by DuncanK Very much so

	17-03-2003 05:17									#102
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quote: Forget about this. It's not an externality.

Damn straight it is!

An externality is any cost or benefit that imposed on others by a transaction. Oil based transportation is definetly a benefit that comes from oil. To say otherwise is silly.

	17-03-2003 05:19									#103
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quote: Your making an excellent argument against neo-classical theory. Please continue.

no problem. since firms dont know where the profit maximization point lies, they will almost always produce under that. that means that when you increase taxes and increase government spending, these firms will not continue to expand. this will lead to a less optimized economy, as the government takes over a larger portion of it and uses more resources to accomplish less.

	17-03-2003 05:19									#104
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quote: Originally posted by Imran Siddiqui quote: Forget about this. It's not an externality. Damn straight it is! An externality is any cost or benefit that imposed on others by a transaction. Oil based transportation is definetly a benefit that comes from oil. To say otherwise is silly.

Consumers pay for this. Therefore it's not an externality.

	17-03-2003 05:21									#105
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quote: Consumers pay for this. Therefore it's not an externality.

Consumers pay for the benefits of improving the standard of living of all people in the reach of this oil based transportation? No, sorry, don't think so.

	17-03-2003 05:23									#106
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quote: Originally posted by Lawrence of Arabia no problem. since firms dont know where the profit maximization point lies, they will almost always produce under that. that means that when you increase taxes and increase government spending, these firms will not continue to expand. this will lead to a less optimized economy, as the government takes over a larger portion of it and uses more resources to accomplish less.

Again, according to neo-classical theory the optimal use of scarce resources occurs when marginal costs equals marginal benefits. Deviations from this are market failure. And when you take this to macroeconomics marginal social costs must equal marginal social benefits or there is market failure. If firms and government can't produce at these points their theory is ****.

	17-03-2003 05:25									#107
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quote: Originally posted by Imran Siddiqui quote: Consumers pay for this. Therefore it's not an externality. Consumers pay for the benefits of improving the standard of living of all people in the reach of this oil based transportation? No, sorry, don't think so.

What the hell are you talking about? What benefits do you recieve if I drive to the beach?

	17-03-2003 05:29									#108
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its called a model. models dont need to exactly represent something in order to accuratly predict an event.

	17-03-2003 05:33									#109
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quote: Originally posted by Lawrence of Arabia its called a model. models dont need to exactly represent something in order to accuratly predict an event.

You were just saying how inaccurate they are.

	17-03-2003 06:04									#110
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the price maximization in a perfect competition market will still be MC=MR. unfortunalty, there is no perfectly competitive market in the world, and there is no way of accuratly gauging the additional cost of producing a unit. the model is still accurate as long as it is within those parameters, and it will show in which direction producers will go even if there is not a perfeclty competitive market. it doesnt predict things with perfect accuracy.

	17-03-2003 06:07									#111
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What I hear you two saying is that we can't even hope to come close to optimal production so just leave it alone.

	17-03-2003 06:08									#112
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its better then giving it up to the government, which is even further from optimal production,

	17-03-2003 06:13									#113
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quote: Originally posted by Lawrence of Arabia its better then giving it up to the government, which is even further from optimal production,

I think not, but a more efficient system is in order regardless.

	17-03-2003 06:23									#114
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economics is about relativity. there is no need to have a more efficient system as long as there is one system which is relatively more efficient.

	17-03-2003 06:36									#115
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quote: Originally posted by Lawrence of Arabia economics is about relativity. there is no need to have a more efficient system as long as there is one system which is relatively more efficient.

There is when you can't prevent your economy from funding your enemies without wrecking your economy.

	17-03-2003 06:47									#116
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then destroy your enemies or dont make any.

	17-03-2003 06:50									#117
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The problem is those damn terrorists are greedy capitalists.

First they were funded by drugs, but now they have also expanded into oil, warez and mp3s.

	17-03-2003 06:50									#118
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You can do that with any system.

	17-03-2003 10:12									#119
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quote: What the hell are you talking about? What benefits do you recieve if I drive to the beach?

I used to live in a town that was by the beach. You will drive to the beach and spend your money, giving money to the local economy making my town a better place to live. I don't pay for my town becoming richer, but I get it anyway.

	17-03-2003 10:17									#120
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quote: Originally posted by Imran Siddiqui quote: What the hell are you talking about? What benefits do you recieve if I drive to the beach? I used to live in a town that was by the beach. You will drive to the beach and spend your money, giving money to the local economy making my town a better place to live. I don't pay for my town becoming richer, but I get it anyway.

I'm going to spend all of my income whether I drive to the beach or not