1.4 - gov intervention Flashcards
1.4.1 [gov intervention]
what are property rights?
-refers to the ability -in law- to hold a good as belonging to you
-must be compensated for land’s use
-used in major infrastructure projects
-fundamental to capitalist system
why do we need property rights?
-if you can’t allocate it, it becomes an issue of how to deal with it
-leads to disputes
-if PR not clear, can lea to overuse as it isn’t clear who owns what
coase theorem?
-market based solutions to externalities
1-clear, established property rights
2 - low transaction costs
-particularly effective in areas such as tradeable pollution permits
applying coase theorem?
-let market determine price
-naturally internalise externality = doesn’t overproduce
-need well defined property rights to get an efficient outcome
-revealed preference
transaction costs?
-how easy it is
-how do you know how much to tax?
gov intervention in markets?
-use tax to deal with negative externalities
-can subsidise so much it becomes a free-provision
maximum price analysis?
[graph in notes]
-rationing function of price not allocating correctly
-excess demand = misallocation of FOP–> shortage of supply –>prevent monopolies from exploiting consumers
-a max price must be set below normal free market equilibrium to have any effect on price and output
minimum price analysis?
-excess supply –> misallocation of resources
-reduce access to alcohol prices
-don’t want a loss leader
-set on goods with negative externalities
1.4.2 [gov failure]
when does gov failure occur?
-occurs when the result of gov intervention in the economy results in a net loss of economic welfare
-social costs of intervention is greater than the social benefits
what can bad policies cause?
1-policies may have damaging long-term effects for the economy or society
2-policies may be ineffective at meeting their stated aims
3-may create more losers than winners
-seen as inefficient allocation of resources
