- Tax policy, there are many equally plausible answers, so in order to obtain a unique meaning, it is necessary to be more specific. For example, the excess burden of a 10 percent tax on retail sales varies not only with the initial conditions of the tax system, but also with the direction of change, i.e., whether the tax is being added or removed.
- I did mod tax inefficiency a little bit. If I remember correctly, I made the reduction to tax ineffeciency from having your minister like you (greater than or equal to 50 relations) a little lower. That change shouldn't change much of what you are seeing, as it has little effect (I left most of the reduction in place).
- Battle continuation for Warband 1.143 has been updated and should work more cleanly now; The defaults listed in the tweak descriptions are being updated to include default values for both Warband and WF&S; 4.02 (07.31.11) Compatibility update for Warband 1.143.
What is tax inefficient? Mount & Blade: Warband PC. Every week i lose about 2,000 because i have 8,000 loss due to tax inefficient. How do i make it right? User Info: coby5. Coby5 - 9 years ago. More taxes should cover the loss from tax inefficient. User Info: Brontanius. Brontanius - 5 years ago 1 0. Loss due to tax inefficiency. How do I prevent this? So, I previously only had two cities, a castle, and a few villages, but Harlus has recently been throwing every single castle I've taken my way and even some cities I didn't personally take, and now my tax loss is hovering around 9,000.
Deadweight Loss - Challenges to Market Efficiency
Defining Deadweight Loss (DWL)
In our previous post on consumer and producer surplus we talked about the social welfare maximizing point occuring where where the quantity supplied equals the quantity demanded (QS = QD).
This means that any deviations from that point are inherently inefficient. Sources of inefficiency result in either producing too much or too little of a good relative to its supply and demand.
This state of overproduction or underproduction can result from different causes including:
- Government policies
- Market distortions
- The presence of externalities preventing us from adequately capturing the true marginal benefit / cost of a given market.
The overall amount, or level, of market inefficiency is called deadweight loss (DWL). DWL a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable. It's easiest to think of deadweight loss as the total reduction in consumer and/or producer surplus.
In a second we’ll look at the various sources of DWL, but first we need to understand how to see DWL (and then how to calculate it).
Identifying and Calculating Deadweight Loss
As we've just stated, DWL comes from either over or underproducing a good relative to its efficient amount. Graphically the yellow DWL triangle occurs between the amount produced and the efficient amount. This is true whether we over or underproduce:
Previously our calculations of producer and consumer surplus have essentially been calculations of the area of a triangle between the demand and supply curve and the price.
Calculating deadweight loss is no different. We calculate the area of the new triangle which either reflects the loss from overproducing or the value forgone by under-producing (the yellow triangle).
On the CFA Level 1 exam you could be asked to calculate DWL, to calculate the new consumer, producer, or total surplus, or to calculate the difference. All of these calculations require you to be able to identify the above areas on the graph before doing any calculations.
The Sources of Market Inefficiency
There are two broad sources of DWL: externalities and government imposed sources of inefficiency. Let's cover each in turn.
Externalities
An externality occurs whenever there is a situation in which the production or consumption of a good has spillover effects onto those who are not directly consuming or producing that good.
Put differently, anytime there are broader social impacts that are not captured by the supply and demand graph we face externalities.[1]
For example, if there are harmful environmental impacts from producing say, oil, then the true marginal cost of that production is actually higher than is graphically represented (i.e. we would shift the supply curve up to reflect a higher marginal social cost).
This negative externality causes us to overproduce oil relative to the efficient level.
Similarly if there are positive externalities from producing a good (i.e. building schools), then we might under-produce that good relative to its benefits (the true demand curve for society, as represented by its marginal social benefit curve -MSB shifts up).
16th karmapa meditation pdf. Here is a graphical example of a deadweight loss caused by under-producing a good with a positive externality:[2]
With either positive or negative externalities the under or over production represents market inefficiency and thus creates a deadweight loss.
Warband Loss Due To Tax Inefficiency
Government Imposed Sources of Market Inefficiency
In this section we cover price controls (floors and ceilings), subsidies, quotas, and taxes and trade restrictions. All of this material is highly testable. You should be able to model (graphically) the impact of each of these government policies and perform the requisite calculations. Pay particular attention to the relative burden of taxes as it relates to elasticity.
Photoshop cs6 video tutorials 2017 torrent. Government policies can distort markets and create inefficiencies. But in markets with externalities or in public gods markets government policy can actually ensure a more efficient outcome.
The most common example of positive government intervention occurs with public goods. A public good is a good or service that is used by consumers whether or not they pay for it directly. Examples include roads and national defense. The central idea here is that because individuals are not paying for the goods the markets will tend to under-produce such goods. This is also known as the free-rider problem.
Another example where government intervention can be a positive occurs with common resources. Common resources are open for all to use (e.g. fisheries). The drawback with these goods is that each individual using the resource has little incentive to maintain the resource and in will in fact tend to over-use it (i.e. over-fish and deplete the ocean). Thus common goods tend to be over-produced relative to the efficient amount.
With that context in place, let's look at specific government policies that can lead to deadweight loss.
Price Ceilings and Deadweight Loss
Price ceilings represent a maximum limit on the price suppliers can charge. A common example of a price ceiling is rent control.
If a ceiling is set above the equilibrium price of a market it will have no effect. If the ceiling price is below the equilibrium price, however, it will result in a shortage of goods (more goods demanded than supplied) and a resulting DWL. Note, however, that consumer surplus may in fact increase.
Here is what it looks like:[3]
As you can see the supplier will only produce the good up until the ceiling price intersects the supply curve instead of the optimal amount.
Signs/impacts of a price ceiling can include the following:
- Long lines to purchase a good
- Possible discrimination by suppliers (picking and choosing who receives the good)
- More potential for bribery
- Development of a blackmarket
- Possible reduction in the quality of the good as suppliers look to cut costs
We see many of these effects in rent controlled apartments which are often poorly maintained with landlords more susceptible to bribes.
The Effect of Price Floors
Price floors represent a minimum mandated price that a buyer can offer a good or service for sale.
If the price floor is below the equilibrium price it will have no effect on the quantity produced. If the price floor is above the market equilibrium, however, it will result in a surplus (more goods are produced than are demanded at that price) and a DWL. Note, however, that it is possible that producer surplus will actually increase.
The most common example of a price floor is the minimum wage law. Graphically, a price floor looks like this:[4]
Taxes and DWL
A per-unit tax will increase the purchase price of a good and thereby decrease the equilibrium quantity. Graphically this is represented as either an upward shift in the supply curve if the tax is levied on producers or a downward shift of the demand curve if buyers are being taxed. Either way the amount of the tax is the difference between what buyers pay and sellers receive.
Here's what it looks like:
The overall DWL that results from a tax depends on the reduction in quantity demanded and the actual size of the tax. Be able to not only discuss the chance in quantity, the change in CS/PS, but also the net revenue of the tax, which is calculated as the new Qd * tax per-unit.
You should also realize that no matter who the tax is levied on both buyers and sellers are effectively bearing some of the burden of these taxes.
Graphically the relative burden of the tax is represented by the relative steepness of the supply and demand curves.
- If the demand curve is steeper (i.e. demand is inelastic) than consumers will bear more of the tax burden
- If demand is less steep (i.e. it is relatively elastic) than consumers will bear less of the tax burden and suppliers will pay more of the tax
Subsidies and Market Inefficiency
Mount And Blade Warband Loss Due To Tax Efficiency
Subsidies are payments from the government to producers for each unit produced. The most common example in the United States is a farm subsidy.
The effect of a subsidy is to shift the supply curve down increasing the equilibrium quantity produced (overproduction) and decreasing the equilibrium price.[5]
Quotas
Quotas are the last form of government intervention we cover.
Quotas are a government imposed mandate on the maximum number of units that may be produced over a given period of time. OPEC has occasionally been known to put a quota on oil production for example and many protectionist governments limit the number of imports through quotas.
By capping the supply, quotas increase prices and decrease the quantity demanded:
Summarizing Deadweight Loss for the CFA L1 Exam
As you can see, there are a variety of ways that an externality or government intervention can shift the market to produce an amount other than the perfectly efficient equilibrium amount. For the L1 exam you need to know how each of the ways listed above do this. In other words, do they shift the demand or supply curve or impose an artifical constraint on the amount that can be produced and exchanged? Once you understand the shift (which could be tested directly), it's a simple matter of identifying the new equilibrium point and performing any necessary calculations for the new DWL triangle. Stay alert for instances where you need to compare the new total surplus to the old total surplus as well.
Xcom 2 julian voice actor. Our next post on elasticity will help you understand what we mentioned in the tax section about the relative burden between consumers and producers and how to determine who bears the cost (elasticity is also extensively tested as a stand-alone concept).
Footnotes
[5] http://ingrimayne.com/econ/Efficiency/EfficiencyMark2.html
[4] http://neighborhoodeffects.mercatus.org/2013/07/09/why-do-almost-all-economists-oppose-u-s-farm-policy/
Warband Loss Due To Tax Inefficiency
[3] https://www.boundless.com/economics/textbooks/boundless-economics-textbook/taxes-and-public-finance-16/introduction-to-taxes-84/how-taxes-impact-efficiency-deadweight-losses-324-12421/images/harberger-s-triangle/
[2] http://www.slideshare.net/vicarick/externalities-graphs-how-i-understand-them?qid=23d3d1d3-f956-4819-907b-3c338fdbbf55&v=&b=&from_search=1
[1] Makes sense right? It is anything external (exogenous) to our supply and demand model.
The determination of Fair Value of machinery and equipment assets for financial reporting purposes should include the consideration of three forms of depreciation: physical, economic and functional. Physical depreciation is the normal wear and tear that diminishes the value of assets over time. Economic depreciation (or obsolescence) is the loss in value resulting from factors external to the asset (or group of assets) such as changes in the supply of raw materials or demand for products. In this Alert, we will consider in more detail the third form of depreciation, functional obsolescence (“FO”).
Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets (The American Society of Appraisers) defines functional obsolescence as a form of depreciation in which the loss in value or usefulness of a property is caused by inefficiencies or inadequacies inherent in the property itself, when compared to a more efficient or less costly replacement property that new technology and changes in design, materials, or process that result in inadequacy, overcapacity, excess construction, lack of functional utility, or excess operating costs in the property. Symptoms suggesting the presence of functional obsolescence are excess operating cost, excess capital cost, over-capacity, inadequacy, and lack of utility. A few examples will help illustrate the elements of this definition.
Curable Functional Obsolescence
This form of FO is present in an asset when, with the expense of replacing necessary components, the asset can be brought up to current operating standards. For example, a milling machine may have its capacity limited by out-of-date computer numeric controls (CNC). By upgrading the CNC, the machine’s capacity is increased. This is the easiest form of FO to quantify if the cost of the necessary upgrade can be identified.
Functional Obsolescence From Excess Capital Cost
Equipment appraisers differentiate between reproduction cost (the cost to reproduce the exact same asset) and replacement cost (the cost to replace an asset with an asset providing the same utility). When the replacement cost for an asset is less than the reproduction cost, the difference is an indication of FO. For example, not too long ago surveying equipment cost thousands of dollars. Today one can find laser-based equipment offering the same (or better) utility in a big box hardware store for several hundred dollars. The value of the older equipment has suffered a loss in value due to FO from excess capital cost.
Functional obsolescence From Excess Operating Cost
As a result of new technology or superior design, it may not only be cheaper to acquire a modern asset, it may also be cheaper to operate it. In one engagement, we valued a number of paper mills. Some of the mills were 100 years old. The inefficient design (the older mills had been re-configured and added on to over the decades) and technological deficiencies of the older mills were indicators of FO. A comparison of production cost per ton for the older mills with that of newer mills producing similar products confirmed this assumption. The calculation of the amount of FO was based on the amount of increased operating expenses.
Functional Obsolescence From Excess Capacity
The loss in value due to the excess capacity of a production plant as a whole is most often due to economic obsolescence—factors external to the assets such as changing demand or industry economics. However, excess capacity of a single asset within a production plant is an indicator of FO resulting in the loss in value of that particular asset. For example, a brewery production line might have a filling machine with the capacity to fill 1000 bottles per minute. If that same line should have a bottle capping machine with a capacity to cap 2000 bottles per minute, the capping machine suffers from a loss in value due to FO. This component of the production line is not used to its full capacity, and therefore no prudent investor would pay for its rated capacity.
Functional Obsolescence (FO) and Economic Obsolescence (EO) Interrelationship
In a recent engagement, we had to deal with both FO and EO. (The calculations below are simplified for the sake of clarity. The actual analysis included exponential adjustments and annual inflation adjustments.)
The chemical plant, built at a cost of $200 million, was designed to produce 100,000 Metric Tons (MT) of product per year (MT/Y). Because of changing environmental regulations, the facility has never produced more than 50,000MT/Y (50% of rated capacity), resulting in an EO penalty caused by external factors.
The company decided to replace certain components of the plant at a cost of $20 million to raise permitted production capacity to 80,000MT/Y. After the new equipment is installed, the facility will have an FO penalty. The FO on the upgraded plant is measured by the reduction in utilization of most of the plant equipment from its rated 100,000MT/Y to 80,000MT/Y. (This is properly regarded as FO because utilization is limited by the new components installed.)
Why This Matters
There are at least two reasons why the consideration of functional obsolescence is important. First, it ensures that the valuation is correct. A prudent investor will either implicitly or explicitly consider FO in the determination of a purchase price for the entire business. The valuation of the individual assets should correlate with these considerations. Second, a failure to consider all forms of depreciation in an initial valuation may result in an impairment charge to the value of the asset or asset group later. For more information on functional obsolescence, contact your VRC representative.