Government Can Sometimes Improve Market Outcomes

- the ability of an individual to own and exercise control over scarce resources (Mankiw)

- Ex) A man will not make a software if he/she knows that his/her software will be stolen by others.

- "We all rely on government-provided poilce and courts to enforce ou rights over the things we produce--and the invisible hand counts on our ability to enforce our rights."

Another reason we need government:

• The invisible hand is powerful, but not all-powerful
• 2 broad reasons why government needs to intervene in the economy and change the allocation of resources that people would choose on their own:
• to promote efficiency and equality
• Most policies aim either to enlarge the economic pie or to change how the pie is divided.

Thank you for your attention!

Market Failure

A situation in which the market on its own fails to produce an efficient allocation of resources

Market Power

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

And one more thing...

Sources:

Essentials of Economic (Mankiw)

http://www.bized.co.uk/educators/16-19/economics/markets/lesson/choice1.htm

http://www.bigtrends.com/trading-education/using-efficiency-ratio-in-your-technical-analysis/

http://www.cibi.ca/insurances/pollution-environmental-liability/

http://mattwisdom.wordpress.com/2012/01/31/the-weather-balance/

http://www.lawtrain.org.uk/equality-and-diversity/

Conclusion

Property Rights

Efficiency

-To say that the government can improve on market outcomes at times does not mean that it always will.

-Sometimes policies are designed simply to reward the politically powerful.

-Economists use the term market failure to refer to a situation in which the market on its own fail to produce an efficient allocation of rsources.

- One cause of market failure is an externality, which is the impact of one person's actions on the well-being of a bystander.

- Another cause is market power, which refers to the ability of a single person (or small group) to unduly influence market prices.

- A cause of a market failure is when a company fails to be efficient.

Externality

Government Can Sometimes Improve Market Outcomes

Equality and Efficiency

- The impact of one person's action on the well-being of a bystander.

-Ex) Pollution

Equality

BY Shubh Garg, Brian Oh,

Steven Kwon, & Zachary Burney

- A market economy rewards people according to their ability to produce things that other people are willing to pay for.

- Ex) Many public policie, such as income tax and welfare system, aim to achieve a more equal distribution of economic well-being.

Government Rules

For example, to reduce pollution, the government can impose a large tax called a corrective tax or impose regulations

Regulations

• The EPA can tell each factory to reduce its pollution by x tons per year.

• The EPA can tax $x to each factory per ton on pollution it emits.

The Invisible Hand

Corrective Tax

Although the invisible hand is powerful, the government has to intervene to enfore rules and regulations.