Distortions (economics)

Distortions (economics)

Distortions in economics refers to conditions that (in theory) create economic inefficiency.

Examples

Examples include rent seeking and conditions that result in a deviation of the marginal rate of substitution in consumption and the marginal rate of transformation in production between goods. commonly measured by the demand price and marginal cost. Such a deviation may result from unregulated monopoly, tariffs, import quotas, uncorrected externalities, or different tax rates on goods. Each of each these may lead to a net loss in consumer surplus (Srinivasan, 1987; Slemrod, 1990). By contrast, in the idealized conditions of perfect competition, there are no such distortions at market equilibrium of supply and demand.

ee also

* Excess burden of taxation
* Inflation#Effects of inflation
* Government failure
* Lump-sum tax
* Market failure
* Optimal tax
* Social welfare

References

* Alan Deardorff. "Distortion," [http://www-personal.umich.edu/~alandear/glossary/d.html Deardorff's Glossary of International Economics - D -.]
* Agnar Sandmo (2008). "Pigouvian taxes." "The New Palgrave Dictionary of Economics", 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_P000351&q=distortions&topicid=&result_number=2 Abstract.]
* Joel Slemrod (1990). "Optimal Taxation and Optimal Tax Systems," "Journal of Economic Perspectives", 4(1), p [http://links.jstor.org/sici?sici=0895-3309%28199024%294%3A1%3C157%3AOTAOTS%3E2.0.CO%3B2-D&size=LARGE&origin=JSTOR-enlargePage p. 157] -178.
* T. N. Srinivasan (1987). "Distortions," "", v. 1, pp. 865-67.


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