Topic 12 Public Choice - Topic 12 The Government and the...

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Topic 12 The Government and the Economy
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Why does government provide some goods and services such as the enforcement of law and order, national defense, and providing good schools and colleges? Why don’t we let private firms produce all these items and leave people to buy the quantities they demand? Do governments provide too much or do they provide too little?
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Public Choices A private choice is a decision that has consequences for only the person making it. A public choice is a decision that has consequences for many people and perhaps for an entire society. Examples of public choices include: Decisions by political leaders and senior public servants about price and quantity regulation, taxes, international trade, and government spending.
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Public Choice and Political Marketplace Four groups of decision makers are: Voters Firms Politicians Bureaucrats Public Choices
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Political Marketplace Voters express their demand via votes. Voters and firms express their demand for policies via campaign contributions and lobbying. Politicians express their supply of policies with proposals which they hope will attract votes. Public Choices
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Bureaucrats try to get the biggest possible budget for their departments and provide public goods and services. Public Choices
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Political Equilibrium In a political equilibrium the choices of voters, firms, politicians, and bureaucrats are compatible and no group can see a way of improving its position by making a different choice. Public Choices
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What Is a Public Good? What is the essential difference between: A city police department and Brink’s security? Fish in the Atlantic Ocean and fish in a fish farm? A live concert and a concert on television? These and all goods and services can be classified according to whether they are excludable or nonexcludable and rival or nonrival . Public Goods
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Excludable A good is excludabl e if only the people who pay for it are able to enjoy its benefits. Brink’s security services, East Point Seafood’s fish, and a Coldplay concert are examples. Nonexcludable A good is nonexcludable if it is impossible (or extremely costly) to prevent anyone from benefiting from it. The services of the Police, fish in the Pacific Ocean, and a concert on network television are examples. Public Goods
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Rival A good is rival if one person’s use of it decreases the quantity available for someone else. A Brink’s truck can’t deliver cash to two banks at the same time. A fish can be consumed only once. Nonrival A good is nonrival if one person’s use of it does not decrease the quantity available for someone else. The services of the Police and a concert on network television are nonrival.
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