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Economics 012 1-17-2008

Economics 012 1-17-2008 - • Until 1930s—US attitude was...

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Economics 012—1/17/2008 - Market Failures: circumstances where something goes wrong and the market can’t fix itself o Richard Musgrave—3 big market failures Provision of public goods—nonexclusion Basis for any market—you want a product, you put up the money and you get the product. If you don’t bring money you don’t get the product (excluded) Market can function when nonbuyers can be excluded from the market (private markets) Public goods free riding o Example: national defense, police protection, sidewalks, roads Nonrival and nonexculdable Taxes have to be used in order to prevent market failures due to public goods Public goods cannot be provided in a private market o Must be decided on in elections (taxes) Distribution of income If the government does nothing, there will be rich, middle-class, and poor
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Unformatted text preview: • Until 1930s—US attitude was “you take care of yourself” o Westward expansion o Changed with the New Deal (FDR) Redistribution of income • 55% of taxes paid by 5% of population • Some pay NO taxes • Social security and medicare are not based on wealth they are based on age • Welfare programs do not encourage social mobility—if the government is taking care of them why should they get a better job o Welfare reform of 1996=success • Milton Freedman’s Negative Income Tax sold to Patrick Moynahan o If you have a job and low income then the government will supplement your income with a negative income tax Must work 20 hours/week Emphasized training to promote social mobility o New approach: let’s not subsidize failure!...
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Economics 012 1-17-2008 - • Until 1930s—US attitude was...

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