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Why Does Deadweight loss of Pickett Matter?

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Econ101

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The deadweight loss of Pickett should matter to all of us.

Deadweight loss is that loss of economic activity that a certain action creates.
Mexico vs. United States is a perfect example of societies with different deadweight losses due to market power. As deadweight loss increases due to market power our society becomes less prosperous. There is a larger divergence between the rich and the poor and the economy becomes weaker with less opportunities for those seeking employment. People become slaves to those who are wielding the market power. Look at the difference between the United States and Mexico. If the deadweight losses of the abuse of market power continue we will truely experience the Mexicanization of the United State's economy.
 

Econ101

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Murgen said:
Your hero is Marx, right?

No, on the contrary. Marx to the left, Mussoulini and Hitler to the Right. Our country must stay right in the middle for the maximum benefit of society. I just speak loudly when we go either way. I spoke out for welfare reform but the pendulum is toward the other side too much now days. Just read the Wall Street Journal or other national papers to see. The middle is hard to stay at but competitive markets keep us there more often than the alternatives.

"Corporatism should be more accurately defined as Fascism as it is the merging of corporate and state power".---Benito Mussoulini

"Power over any free man should only be exerted by the woman he loves in the ways he is susceptable. Not by the government and not by corporations but guided by his conscience which should be led by God and the understanding He gives."
 

Econ101

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Murgen said:
Your hero is Marx, right?

No, on the contrary. Marx to the left, Mussoulini and Hitler to the Right. Our country must stay right in the middle for the maximum benefit of society. I just speak loudly when we go either way. I spoke out for welfare reform but the pendulum is toward the other side too much now days. Just read the Wall Street Journal or other national papers to see. The middle is hard to stay at but competitive markets keep us there more often than the alternatives.

"Corporatism should be more accurately defined as Fascism as it is the merging of corporate and state power".---Benito Mussoulini

"Power over any free man should only be exerted by the woman he loves in the ways he is susceptable. Not by the government and not by corporations but guided by his conscience which should be led by God and the understanding He gives."

"The loss of freedom often comes disguised as freedom."
 

Econ101

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Murgen said:
Your hero is Marx, right?

No, on the contrary. Marx to the left, Mussoulini and Hitler to the Right. Our country must stay right in the middle for the maximum benefit of society. I just speak loudly when we go either way. I spoke out for welfare reform but the pendulum is toward the other side too much now days. Just read the Wall Street Journal or other national papers to see. The middle is hard to stay at but competitive markets keep us there more often than the alternatives.

"Corporatism should be more accurately defined as Fascism as it is the merging of corporate and state power".---Benito Mussoulini

"Power over any free man should only be exerted by the woman he loves in the ways he is susceptable. Not by the government and not by corporations but guided by his conscience which should be led by God and the understanding He gives."

"The loss of freedom often comes disguised as freedom."
 

Sandhusker

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You're right, 101. We already are seeing the widening of the gap between the haves and the havenots in this country.

What's your take on the WTO and the other trade agreements we have entered into?
 

Econ101

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Sandhusker, I love your question. It will have to wait, however. I will say that the subject Farique (sp?) brought up on the George Stephanopolous show this last sunday morning in front of George Will is important. He said something to the effect that the reason we have not had inflation in our economy from the run up in the budget is because of the deflationary pressures China has brought into our economy. I did a little research work on international trade and agriculture policy when in college and have definite views on this one. The devil is in the details and like the CAFTA vote, we are not allowed to see all the issues hidden in the details.
 

Sandhusker

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Econ101 said:
Sandhusker, I love your question. It will have to wait, however. I will say that the subject Farique (sp?) brought up on the George Stephanopolous show this last sunday morning in front of George Will is important. He said something to the effect that the reason we have not had inflation in our economy from the run up in the budget is because of the deflationary pressures China has brought into our economy. I did a little research work on international trade and agriculture policy when in college and have definite views on this one. The devil is in the details and like the CAFTA vote, we are not allowed to see all the issues hidden in the details.

That's fine, I'll wait. Welcome to the board.
 

pointrider

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Hi Econ101!

Two questions, please.

You stated, "deadweight loss is that loss of economic activity that a certain action creates." Maybe it's a matter of semantics, but my understanding is that deadweight loss is a reduction of net economic benefits resulting from an inefficient allocation of resources.

If you will humor me on that,

1. what constitutes an inefficient allocation of resources, and

2. what exactly is a reduction of net economic benefits?

Thank you!
 

Econ101

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pointrider said:
Hi Econ101!

Two questions, please.

You stated, "deadweight loss is that loss of economic activity that a certain action creates." Maybe it's a matter of semantics, but my understanding is that deadweight loss is a reduction of net economic benefits resulting from an inefficient allocation of resources.

If you will humor me on that,

1. what constitutes an inefficient allocation of resources, and

2. what exactly is a reduction of net economic benefits?

Thank you!

Pointman, you are right about deadweight losses. I wish I could easily show you the graphical representation of losses, to the producers and or the merchants, and or the consumer surplus but I don't think I know how to get the graph on this forum. You will have to find them under monoposonies on the net. They are well known however. Traditionally deadweight losses are thought of by the graphical representations of monopolies (if there is just one seller, like your electric utility) or oligopolies (where there are just a few sellers). These usually graph the loss of consumer surplus and the deadweight loss to the economy. In graphing monopsonies (one buyer) or oligopsonies (several buyers), there are the same type of losses but they are losses to the producer surplus (the piece of the pie the farmer gets) and deadweight losses. Just because the losses are not consumer losses does not mean that the society is better off. There is a deadweight loss where the increase to consumer surplus (buyer surplus) is offset by the loss to producer surplus.
In other words, the gains to buyers by the exercise of monopsony power, even if all given to the consumers, creates a deadweight loss to society.

Question: Does taxing all producers and giving all that tax money to consumers create deadweight losses? Of course it does. That is why there is a law against it. In the Tyson case, taxing all cattle producers eventually causes the price to go up. When the price goes up Tyson's argument is that if all of the taxes are given to consumers then there is no harm done. This is a lie. This does create a deadweight loss. This also belies the fact that they really made out in the chicken side of their business when prices of beef went up. The market structure in chicken is one where the increases in price go directly into the pockets of Tyson. Thus, they have a reason to swing the cattle markets when they claimed they had no reason to swing them. They have clever arguments that are just wrong. I call this justification of stealing the robin hood argument. If they take from the cattle farmers and give what they took to the consumer, it creates deadweight losses and they do it to make more money in poultry and pork.

Whenever there is market power exerted on markets, there is an inefficient allocation of resources. Prices should be set by supply/demand, not all of the things outlawed in Section 202. It should be noted that many of the "unfair" things they do are an attempt to change market participant's (seller) behavior in their favor. For instance, it would be unfair to give preferential treatment to some sellers if those preferential treatments put others at a disadvantage. The thing Tyson tries to do is to put some business justification in the mix so that it is hard to tell if the business justification outweighed the harm. Any time a monopsonist claims efficiencies of another as a justification for its actions you better wath out. That would be a possible sign of the abuse of market power. That was the case in the Pickett case.
 

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