Failures(M-Grow-Hill,微观经济学,王秋石)

1、Government Policy and Market FailuresChapter 15Laugher CurveQ.How many economists does it take to screw in a light bulb?A.Eight. One to screw it in and seven to hold everything else constant.IntroductionShould the government intervene in the market?The framework presented might be called the invisib

2、le hand framework.Invisible hand framework perfectly competitive lead individuals to make voluntary choices that are in societys interest.Market FailuresA market failure occurs when the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes.Market Fa

3、iluresAny time a market failure exists, there is a reason for possible government intervention into markets to improve the outcome.Market FailuresBecause the politics of implementing the solution often leads to further problems, government intervention may not necessarily improve the situation.Exter

4、nalitiesExternalities are the effect of a decision on a third party that is not taken into account by the decision-maker.Externalities can be both positive and negative.ExternalitiesNegative externalities occur when the effect of a decision on others that is not taken into account by the decision-ma

5、ker is detrimental to the third party.Examples include second-hand smoke, water pollution, and congestion.ExternalitiesPositive externalities occur when the effect of a decision on others that is not taken into account by the decision-maker is beneficial to others.Examples include innovation, educat

6、ion, and new business formation.Negative ExternalitiesWhen negative externalities ensue third parties are hurt.Marginal social cost is greater than marginal private cost.Negative ExternalitiesMarginal social cost includes all the marginal costs borne by society.Negative ExternalitiesMarginal social

7、cost is calculated by adding the negative externalities associated with production to the marginal private costs of that production.The Effect of a Negative ExternalityMarginal social benefit Marginal private cost Marginal social costCostQuantity0Q0P0Q1P1Marginal cost from externalityPositive Extern

8、alitiesPrivate trades can benefit third parties not involved in the trade.Marginal social benefit equals the marginal private benefit of consuming a good or service plus the positive externalities resulting from consuming that good or service.A Positive ExternalityCostQuantity0Marginal benefit of an

9、 externalityD0 = Marginal private benefitD1 = Marginal social benefitQ0P0Q1P1S = Marginal private and social costAlternative Methods of Dealing with ExternalitiesExternalities can be dealt with via direct regulation, incentive policies, and voluntary solutions.Direct RegulationA program of direct re

10、gulation is where the amount of a good people are allowed to use is directly limited by the government.Direct RegulationEconomists do not like this solution since it does not achieve the desired end as efficiently (at the lowest cost possible in total resources without consideration as to who pays t

11、hose costs) and fairly as possible.Direct RegulationDirect regulation is inefficient because it achieves a goal in a more costly manner than necessary.Incentive PoliciesIncentive programs are more efficient than direct regulatory policies.The two types of incentive policies are either taxes or marke

12、t incentives.Tax Incentive PoliciesA tax incentive program uses a tax to create incentives for individuals to structure their activities in a way that is consistent with the desired ends.Often the tax yields the desired end more efficiently than straight regulation.Tax Incentive PoliciesThis solutio

13、n embodies a measure of fairness about it the person who conserves the most pays the least tax.Tax Incentive PoliciesAnother way to handle a negative externality is through a pollution tax or effluent fees.Effluent fees charges imposed by government on the level of pollution created.Regulation Throu

14、gh TaxationMarginal social benefit Marginal private cost Marginal social costCostQuantity0Q0P0Q1P1Efficient taxMarket Incentive PoliciesAn alternative to direct regulation is some type of market incentive program.Market incentive program a plan requiring market participants to certify total consumpt

15、ion their own or others has been reduced by a specified amount. Market Incentive PoliciesA market incentive program is similar to the regulatory solution in that the amount of the good used is reduced.Market Incentive PoliciesA market incentive program differs from a regulatory solution in that indi

16、viduals who reduce consumption by more than the required amount are given a marketable certificate that can be sold to someone else.Voluntary ReductionsVoluntary reductions leave individuals free to choose whether to follow what is socially optimal or what is privately optimal.Economists are dubious

17、 of voluntary solutions.Voluntary ReductionsA persons social conscience and willingness to do things for the good of society generally depend on his or her belief that others will also be helping.Voluntary ReductionsIf a socially conscious person comes to believe a large number of other people will

18、not contribute, he or she will often lose their social conscience.This is another example of a free rider problem individuals unwillingness to share in the cost of a public good.The Optimal PolicyAn optimal policy is one in which the marginal cost of undertaking the policy equals the marginal benefi

19、t of that policy.The Optimal PolicyShould pollution be totally eliminated?Some environmentalists say “yes.Economists would answer that doing so is costly so marginal costs should be balanced against marginal benefits.The Optimal PolicyThe point where MC = MR is called the optimal level of pollution.

20、Optimal level of pollution the amount of pollution at which the marginal benefit of reducing pollution equals the marginal cost.Public GoodsA public good is one that is nonexclusive (no one can be excluded from its benefits) and nonrival (consumption by one does not preclude consumption by others.Pu

21、blic GoodsThere are no pure examples of a public good.The closest example is national defense.Technology can change the public nature of goods.Roads are an example.Public GoodsOnce a pure public good is supplied to one individual, it is simultaneously supplied to all.A private good is only supplied

22、to the individual who bought it.Public GoodsWith public goods, the focus is on groups.With private goods, the focus is on the individual.Public GoodsIn the case of a public good, the social benefit of a public good is the sum of the individual benefits.Public GoodsAdding demand curves vertically is

23、easy to do in textbooks, but not in practice.This is because individuals do not buy public goods directly so that their demand is not revealed in their actions.The Market Value of a Public Good0.50Price123Quantity.01.00Market demandDBDA0.100.400.100.600.50Informational ProblemsPerfectly co

24、mpetitive markets assume perfect information.Real-world markets often involve deception, cheating, and inaccurate information.Informational ProblemsWhen there is a lack of information, buyers and sellers do not have equal information, markets may not work properly.Informational ProblemsEconomists ca

25、ll such market failures adverse selection problems.Adverse selection problems problems that occur when a buyer or a seller have different amounts of information about the good for sale.Policies to Deal with Informational ProblemsOne policy alternative to deal with information market failures is to r

26、egulate the market and see that individuals provide the correct information.Policies to Deal with Informational ProblemsAnother alternative is for the government to license individuals in the market and require them to provide full information about the good being sold.Policies to Deal with Informat

27、ional ProblemsRegulatory solutions may be overly slow or costly.A Market in InformationA market in information is one solution to the information problem.Information is valuable, and is an economic product in its own right.A Market in InformationLeft on their own, markets will develop to provide inf

28、ormation that people need and are willing to pay for it.A Market in InformationEconomists who do not like government interference point out that informational problems are not a problem of the market; it is a problem of government regulation.Licensing of DoctorsLicensing of doctors is a debate that

29、is motivated by information problems.Currently all doctors practicing medicine are required to be licensed this was not always so.Licensing of doctors is justified by informational problems.Licensing of DoctorsSome economists argue that licensing is as much a problem of restricting supply as it is t

30、o help the consumer.Licensing of DoctorsWhy, if licensed medical training is so great, do we even need formal restrictions to keep other types of medicine from being practiced?Licensing of DoctorsWhom do these restrictions benefit: the general public or the doctors who practice mainstream medicine?W

31、hat have the long-term effects of licensure been?An Informational Alternative to LicensureAs an alternative, the government could provide the public with information about which treatments work and which do not.This would give rise to consumer sovereignty the right of the individual to make choices

32、about what is consumed and produced.An Informational Alternative to LicensureIn this scenario, the government would provide such information as:Grades in college.Grades in medical school.Success rate for various procedures.References.Medical philosophy.Charges and fees.An Informational Alternative to LicensureThis information alternative would provide much more useful information to the public than the present licensing procedure.An Informational Alternative to LicensureHere are some words of caution about the informatio