EEP101_lecture2-1

EEP101_lecture2-1 - Chapter 2: When is a Market Socially...

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Chapter 2: When is a Market Socially Optimal? Basic Definitions Potential Reasons for Government Intervention in the Market 1. Government Policies to Disseminate Information 2. Externalities 3. Public Goods 4. Transfer Policies 5. Noncompetitive Behavior
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Basic Definitions Competitive Economy : An economy, which consists of many small economic units, each with no market power. Pareto Optimal : A resource allocation such that you cannot improve any individual’s welfare without hurting at least one other individual. Efficient allocations. Main Theorem of Welfare Economics : Competitive economy will result in a pareto optimal resource allocation when: - Full information exists - No externalities exist - There are no increasing returns to
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Potential Reasons for Gov't Intervention in the Market 1. Facilitate information flow 2. Manage externalities 3. Provide public goods 4. Adjust income distribution 5. Manage non-competitive behavior
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Facilitate information flow Education and extension Public supported media and
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EEP101_lecture2-1 - Chapter 2: When is a Market Socially...

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