Assignment: Markets and the Economic of the Public Sector

Purpose of Assignment

Students will employ the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. Students learn about welfare economics--the study of how the allocation of resources affects economic well-being--and will discover that under most circumstances, the equilibrium price and quantity is also the one that maximizes welfare. Students will review different sources of externalities and a variety of potential cures and will see that while markets are usually a good way to organize economic activity, governments can sometimes improve market outcomes. Students will see how the U.S. government raises and spends money and the difficulty of making a tax system both efficient and equitable.

Assignment Steps

Scenario: You have been assigned to a team that has the responsibility of preparing a paper for the governor's next economic conference.
Prepare a 1,050-word paper addressing the following:

• Explain why equilibrium of supply and demand is desirable.
• Explain the following concepts using the concept of consumer and producer surplus:

o Efficiency of markets
o Costs of taxation
o Benefits of international trade

• Discuss how externalities may prevent market equilibrium and the various governments policies used to remedy the inefficiencies in markets caused by externalities.

• Analyze the difference between the efficiency of a tax system and the equity of a tax system as it refers to the costs imposed on taxpayers using the benefits principles.