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Goverment and Business


undefined, object
copy deck
authoritiain view; herarchial; lord or king has absolute power
Other social objectives
the promotion of ethics, multiculturalism, culture
are third-party effects. when a another group is affected by the economic activity of others withouht market to price the effect
Pareto efficiency
Allocational efficiency is attained when it is impossible to re-allocate the resources among a group of people in such a way as to make at least one person better off without making anybody else worse off ( no Pareto improvents can be made)
economic freedom
individuals are free to enter any agreement re: production, distribution, consumption
Economic Concepts
1. Opportunity Costs 2. Economic Incentives 3.Margalism 4. Ecomic Efficieny (4)
What ought ot be :What it SHOULD or shouldn't be;seek promote the public interest
individual sovereignty
public good
1. a public good is NON-RIVAL in competiton 2. NON-EXCLUSIVE
free rider
problem occurs because goods are public- non-exclusive
even though one person consumes the goods, others may also consume it ; lighthouse the services are not used up
Goals of the Goverment (4)
There are Four: 1. Economic Efficency 2. Macroeconomic Stability and Growth 3. Fairness 4. Other social objectives
market failure
a situation in which private markets fail to achieve allocative(pareto) efficency
proces reflect marginal value: pardox of value ( water is cheaper than dimonds)
consumer sovereignty
individuals have the right ot tasts and preferences, as long as they don't impinge on the right of others
macroeconomic stability and growth
stabilizing cyclical fluctuations that affect business activities and employment. ‐Smooth business cycle, -keep unemployment rates low and stable, keep inflation rates low and stable, promote economic growth
Pareto improvement
occurs when at least one person is made better off while no one is made worse off.
Descriptive approach: it studies the objectives, behaviour, and interaction of individuals and groups who influence policy decisions
potential Pareto improvement
is said to exist if a re‐allocation of resources allows those individuals who are net gainers to (hypotheically) fully compensate the net losers, and still be better off
philosply of __enterprise; 2 concepts: economic freedom and consumer sovereignty
marginalist principle
any policy or action should be undertaken only if the incremental or marginal benefit exceeds the marginal opporutity costs
opportunity costs
the opportunity cost of any action is the value of the next most valuable action forgone
Economic efficency
maximizing per capita benefits from the consumption of goods and services ( make the pie as big as possible)
principle of legality
governmental authority is legitimately excerised only in acccordance with written,publicaly disclosed laws -->adopted and enforced in accordace with established procedure
such as redistribution, access to care, anti-discrimination, protection of children and others
Production efficency
management efficency is attained when a firm is managed so that total costs are minimzized for a given level of output. This is exactly equivalent ot saying that the maximum amount of output is being produced form a given level of inputs
individuals shoudl resign their own will for the good of society
it is impossible, very costly to exclude anyone from consuming the good
economic incentives
ex: blank cheques, junion members tennis, federal service buycots, rising unemployment beneifts; polices have unintended consquences because they alter the incentives of individauls

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