Unit 1 Flashcards
What is the aggregation problem?
The idea that individual preferences can’t always be easily/fairly aggregated to group preferences, and that chosen politicians may not necessarily implement the policy chosen by the majority
What is the agency problem?
The idea that the political process may not always ensure that the desirable outcome (ie. will of the majority) is achieved
Why do we need a government? (4 main reasons)
1) Establishing and protecting property rights
2) Public Good problem
3) Coordination problem
4) Redistribution
What is Coase theorem?
If property rights are respected and transaction costs are zero, market outcomes are efficient, regardless of the initial assignment of property rights (point 1 why do we need a gov.)
Why does establishing and protecting property rights work better with a government?
Prisoner’s Dilemma: shows that in many situations the best outcome won’t be reached without co-operation (find example of this?)
Coase Theorem: government can help to promote property rights and keep transaction costs low tf helps get to efficient outcomes
What is the public good problem and why does it imply we need a government?
PGs are non-excludable and non-rival; since people do not fully internalise the benefits when considering contributions to the good, it is underfunded and market production is inefficient (learn and draw diagram?)
Example of where government provision of a PG is v important?
Law and order establishment -> safety and security!
What is the coordination problem, why does it suggest we need a government?
When economic entities fail to reach a more desirable outcome because they do not coordinate their decision-making
This occurs if there are multiple equilibria in the economy
Why does redistribution between groups suggest we need a government? (2) Example of redistributions within society?
Redistribution can be from young to old, low income to high income groups etc.
Redistribution between groups allows us to operate more efficiently, transferring funds between groups to enable the society to operate more equitably and more efficiently as a whole (eg. providing funds for education to the young?)
Also Rawls Theorem
What does Rawl’s Theory suggest? Why?
It suggests that society should promote equal opportunity, basic equal rights, and should help the most disadvantaged
Why? Because it believes that most people would choose this society if they didn’t know which position in it they’d be placed!
Define a stable marriage?
A marriage is stable if no unmatched man and woman each prefers the other to his/her spouse
ie. people do not find it ‘mutually profitable’ to break from partners and rejoin (further explanation in notes)
See
Roommate problem in notes (check understand!)
How do you test a stable match?
Consider each possible set of pairings, see if there is any mutual improvement between pairs, if there is that match isn’t stable, if there isn’t it is stable
Can we always find a stable match?
NO - see example slide 20
What are two possible algorithms that solve the stable marriage problem?
1) Gale and Shapley (1962) algorithm
2) Irving efficient algorithm (optional material)
