Political Science 2211E Lecture Notes - Lecture 4: Pigovian Tax, Market Failure, Market System
4 Feb 2019
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Document Summary
Advocates some intervention to correct "market failures" When free markets don"t work the way they are supposed to. Creates a problem that free market wont fix on its own. Creates rationale for intervention to correct failure. Microeconomics: focus on producers/consumers and individual products. Arthur pigou 1920: the economics of welfare. About welfare of society a whole, not welfare programs. Market system was most efficient but subject to failures. Sometimes prices don"t reflect product"s true value. Use taxes and subsidies to make prices reflect true cost of products. Came up with idea that taxes can be used to influence behavior; not just to raise money for gov. Tax thing society doesn"t want (ex: smoking) Subsidize things society does want (ex: education) "pigouvian taxes and subsidies": tax designed to change behavior. John maynard keynes 1936 general theory of employment interest and money. Focus on market failures at macroeconomic level. Failure of high unemployment to self correct.
