ECON 101 Lecture Notes - Lecture 7: Invisible Hand, Government Failure, Externality
Document Summary
Economists use the concept of efficiency to judge actions because of efficient use of resources implies the maximum value of output from the resource base. All activities that provide individuals with more benefits than costs must be undertaken. If it"s worth doing, it"s worth doing imperfectly. When making personal decisions, people seem to be more aware that perfection is almost never aware of the cost. There is substantial agreement among scholars that at least function of government are legitimate. Protective function; protection of individuals and their property against invasion by others. Productive function; the production of goods and services that cannot easily be provided through private markets. Gov providing things not easily provided by markets. Involves the provision of a limited set of goods difficult to supply through the market. Externalities- a cost of benefit that is confirmed or imposed on someone making the decision. Ex. loud party at your house and neighbor gets mad, cost on neighbor.
