Chapter 5-2 - Adam Smith and Efficiency Everyoneconsumers,...

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1 Chapter 5-2 Role of Government in the Market System Adam Smith and Efficiency • Everyone—consumers, firms, resource suppliers—attempts to get the most benefits for the least cost. • As Adam Smith noted in 1776, self-interested individuals, wholly unaware of the effects of their actions, act as if driven by an invisible hand to produce the greatest social good. • An efficient use of resources implies a maximum value of output from a resource base. This is called technical efficiency . • When one person cannot be made better off without making someone else worse off is called economic efficiency . Government as the Guardian The Government’s Role Markets may fail to achieve efficiency and create a role for government as a result of: Externalites Externalites Public Goods Public Goods Business Cycles Business Cycles Lack of Competition Lack of Competition Imperfect Information Imperfect Information Market Imperfections • When information is not perfect, market imperfections may result, leading to inefficiency • Brand names, franchises, and product
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This note was uploaded on 01/01/2011 for the course ECON 101 taught by Professor E during the Spring '10 term at American College of Computer & Information Sciences.

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Chapter 5-2 - Adam Smith and Efficiency Everyoneconsumers,...

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