When you ride alone you ride with Bin Ladin

[Imran Siddiqui]

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.

[DuncanK]

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.

[Imran Siddiqui]

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?

[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.

[DuncanK]

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.

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.

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

Forget about this. It's not an externality.

[DuncanK]

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.

[OneFootInTheGrave]

You might be riding with OBL and G.W Bush together in the backseat... haven't you thought of that?

[Lawrence of Arabia]

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.

[DuncanK]

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

[DuncanK]

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.

[OneFootInTheGrave]

Originally posted by DuncanK


Very much so

[Imran Siddiqui]

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.

[Lawrence of Arabia]

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.

[DuncanK]

Originally posted by Imran Siddiqui

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.

[Imran Siddiqui]

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.