Coursework About Markets and the Economics of the Public Sector

Markets and the Economies of the Public Sector
Student’s Name
Institutional Affiliation
Markets and the economies of the public sector
The efficiency of markets is a concept which illustrates the degree to which securities such as share prices reflect the actual information existing in a market. Investors are required to know the relevant information regarding securities in a market (Mankiw, 2014). In turn, this would be able to know when to either purchase or sell securities at maximum benefits without increasing the cost of transaction involved. In this regard, consumer surplus refers to the benefit obtained by consumers when they engage in the market. It is derived by subtracting the sum paid by consumers from the value which they obtain in the market. Producer surplus refers to the gain vendors achieve by participating in the market. Producer surplus is achieved by subtracting the cost incurred by the vendors from the total sum which they obtain.
Despite the fact that taxation is of benefit to the public, it has hidden costs. The cost of taxes incurred by both consumers and producers is more than the revenue raised by the state. Imposing a tax on consumers increases the cost they incur while it decreases the price received by vendors. Similarly, when a tax is levied on vendors, it hikes the cost paid by consumers and drops the price paid to vendors. This situation is referred to as the deadweight loss of taxation. Given this effect that tax has on prices paid by consumers and those received by vendors; imposing a tax would reduce the volume of goods to be less than that which would have been traded in the event of no tax. The cost of taxes affects market participants by resulting in consumer surplus and producer surplus among other effects. In this case, consumer surplus indicates consumers’ gain. This gain is achieved when the actual cost consumers pay is subtracted from the cost they are willing to pay for the same commodity. Producer surplus is reflected by the gain received by vendors in a market. Accordingly, this is achieved by subtracting the actual cost of commodities from the cost which the vendors obtain.
International trade provides a wider market for commodities and this has an impact on both the vendors and the consumers of commodities. In the event of a free trade, international trade increases the domestic price of a commodity such that it is equal to the global price (Mankiw, 2014). This is because vendors of the commodity will only accept prices equal to the global price. Accordingly, consumers will not pay a price higher than the global price. However, there is a difference between the volume supplied (of that particular commodity) in a nation and that which is demanded within the nation. This difference is kept in symmetry by the fact that the rest of the world is also a player in the trade. The supplier of the commodity can vend as much commodity as can be sold at the global price. In this regard, the vendor of the commodity who is engaging in international trade becomes advantaged. Such a vendor is made better off by the fact that he or she can sell their entire commodity at global prices. Consequently, this represents the producer surplus in international trade. Additionally, consu...