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Applied Welfare Economics$
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Chris Jones

Print publication date: 2005

Print ISBN-13: 9780199281978

Published to Oxford Scholarship Online: July 2005

DOI: 10.1093/0199281971.001.0001

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Non-tax Distortions in Markets

Non-tax Distortions in Markets

(p.82) 4 Non-tax Distortions in Markets
Applied Welfare Economics

Chris Jones (Contributor Webpage)

Oxford University Press

A range of important non-tax distortions are examined in this chapter. They include externalities, non-competitive behaviour, and price-quantity controls that are important and are topical extensions to the basic analysis. Many non-tax distortions apply in labour markets, and since labour is a significant input to production, both private and public, these distortions have important welfare effects. This is demonstrated by deriving the shadow wage rate in the presence of minimum wage laws and other labour market interventions to identify their welfare effects. The analysis confirms that welfare effects from policy changes depend crucially on the type of market distortion. While equilibrium outcomes in the presence of non-tax distortions can be replicated by appropriately chosen taxes and/or subsidies, any welfare effects from policy changes in their presence can be quite different. For example, increasing the supply of a good that is subject to an effective price floor will not expand activity because it is demand-constrained, whereas activity will rise in the presence of a tax.

Keywords:   externalities, monopoly, price ceilings, price controls, price floors, shadow wage

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