Goverment and Business
Terms
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- feudal
- authoritiain view; herarchial; lord or king has absolute power
- Other social objectives
- the promotion of ethics, multiculturalism, culture
- externalites
- 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)
- Normative
- What ought ot be :What it SHOULD or shouldn't be;seek promote the public interest
- capitalism
- 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
- nonrival
- 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
- Marginalism
- 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.
- Postive
- 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
- private
- 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
- Fairness
- 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
- socialism
- individuals shoudl resign their own will for the good of society
- non-exclusive
- 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