AREC 250 Chapter Notes - Chapter 6: Deadweight Loss, Economic Equilibrium, Price Floor
26 Sep 2016
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The arguments for intervention fall into three categories: correcting market failures, changing the distribution of surplus, and encouraging or discouraging consumption of certain goods. Correcting market failures: situations in which the assumption of efficient, competitive markets fails to hold (market failures). If there is only one producer of a good, who faces no competition and can charge an inefficiently high price. Changing the distribution of surplus: efficient markets maximize total surplus, but an efficient outcome may still be seen as unfair. Even if the job market is efficient, wages can still drop so low that some workers fall below the poverty line while their employers make healthy profits. Encouraging or discouraging consumption: governments use taxes to discourage people from consuming bad products, without panning them altogether. Use subsidies to encourage people to consume good products or services. Normative analysis: is a matter of values and opinions: do you think the policy is a good idea.
