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ECN212 Week 05 Note

by: Phoebe Chang

ECN212 Week 05 Note ECN 212

Marketplace > Business > ECN 212 > ECN212 Week 05 Note
Phoebe Chang
GPA 4.28

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Difficult Cases for the Market and Role of Government
William Foster
Class Notes
economy, Math, Microeconomic, Government, Money
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This 3 page Class Notes was uploaded by Phoebe Chang on Thursday February 18, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 9 views.


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Date Created: 02/18/16
ECN212TheMarketandRoleofGovernment SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe( 1. Economic Efficiency  ○ Definition  ■ Efficient use of resource = maximum value of output  ○ Conditions  ■ All activities providing individuals with more benefits than costs  ■ No activities providing individuals with less benefits than costs  ■ Both condition must present = Economic Efficiency  ○ Graph  ■ Marginal cost = supply curve  ■ Marginal benefit = demand curve  ■   ■ Only Q2 = efficient   ○ Facts  ■ Nothing is worth doing to one’s best ability (time is costly)  ■ Economics = gain stops at some point  ■ Trade­offs = what activity is worthy to do than the others  ■ Principles applies to personal decisions, government, on all  ■ Perfection doesn’t worth the cost  1 2. Government— Invisible Hand Interference   ○ Two Functions of the Government  ■ Protective function  ■ Protect individuals and their property from the others  ■ Legal structure (laws) needed to maintain / enforce the settlement of disputes  ■ Productive function  ■ Production of goods and services can’t be easily provided through private  markets  ■ Stable Monetary and financial environment is important  ■ E.g. Mail delivery, national defense, national parks, infrastructure etc.  ○ Four Reasons Why the Invisible Hand Fail  ■ Lack of competition  ■ Sellers may gain by restricting output  ■ Sellers may raise price  ■ Too few units will be produced  ■ E.g. Movie theater expensive food / drink  ■ Monopolies  ■ Produce less than equilibrium quantity   ■ Charge more than equilibrium price  ■ Externalities  ■ External Costs  ■ Action of an individual or group harm the others  ■ Property rights are imperfectly defined or enforced  ■ Problems  ■ Too many units produced; valued less  ■ Supply curve understates the true production cost  ■ E.g. Pollution  ■ External Benefits  ■ Action of an individual or group benefits others  ■ Problems  ■ Too few units produced; highly valued  ■ Demand curve understates the true production cost  ■ E.g. Vaccine / Flu shot  2 ■ Public goods  ■ Jointly Consumed and Non­excludable  ■ All people enjoy the service or good  ■ Can’t keep anyone out  ■ E.g. Clean air, military protection, broadcast, tv signals  ■ Problems  ■ Free rider receives the benefits without helping to pay for its cost  ■ The reason of taxing   ■ Market develops towards providing public good interfering self­interest with  public interest  ■ Poor information  ■ Not having fully transparency   ■ Responses to poor information   ■ Consumer information publication  (expert evaluation / unbiased information)  ■ Brand names and franchises  (Standardized quality and dependability)  ■ Warranties   (Promises to repair problems)      3


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