ECON102-Lecture%205-Social%20Welfare

ECON102-Lecture%205-Social%20Welfare - Social Welfare: is...

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Social Welfare: is there the best way to promote it? Lecture 5
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Recap  Both market and government-controlled  economies have their advantages and  disadvantages A clear advantage of a market system is  that it is  efficient An advantage of a government-controlled  economy is that it may be possible to  ensure fairer income distribution and take  better care of the common good (like the  environment) 2
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Free markets are like a giant supercomputer  network; are constantly reoptimizing production  and allocating the results efficiently  -> Prices provide a way of deciding who gets to  enjoy a limited supply of a commodity (good  schools, good coffee); but prices also give the  signal to build more good schools, make better  coffee In the longer run, a price system transforms a  high willingness to pay for good schools into a  lot of good schools, a high demand for coffee  3 Recap
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Recap: market failures If there is open access  to some goods and  services, markets fail to provide them If there are side effects  to some goods and  services, markets fail to punish for the negative  side effects or reward for positive side effects Incomplete or asymmetric information  results in  markets failing to facilitate exchanges efficiently,  leads to panic and instability Market power and taxes  alter the information the  market prices convey and so the markets fail to  work properly 4
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Recap: government failures Shortages and poor quality of consumer goods  and services Waste, low productivity Disrupted production because of price controls Consumers need to engage into non-price ways  of competing for the good: line ups, bribes,  protests 5
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Recap: Life without markets When there are no markets, there is a  problem, because without the information  that markets aggregate, it is unclear   whether there should be more schools or  more police, or more parks Should the wages of the teachers rise?   Should public transit be more expensive or  less expensive? Politicians know that we the people value  good schools -> but the difficulty is that they  also hear that we want better roads, better  health system, better police protection,  larger welfare benefits, lower taxes… 6
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Non-market systems have their  advantages and sometimes the loss of  information is worthwhile  because it is  offset by gains in equality or stability We think that the value we get from  schools and police are more than  what they cost to us in taxes, but we  don’t know for sure  -> Not so with coffee and dresses. 7
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ECON102-Lecture%205-Social%20Welfare - Social Welfare: is...

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