3 (38) - CHAPTER 1 temptation for nondisabled people to use...

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Unformatted text preview: CHAPTER 1 temptation for nondisabled people to use them is so great that we must be dissuaded by fear of getting a ticket.) 50. short of hiring parking valets to allocate spaces. there is a conflict between equity. making life “fairer" for disabled people. and efficiency. making sure that all opportunities to make people better off have been fully exploited by never letting close-in parking spaces go unused. Exactly how far policy makers should go in promoting equity over efficiency is a difficult question that goes to the heart of the political process. As such. it is not a question that economists can answer. What is important for economists. however. is always to seek to use the economy's resources as efficiently as possible in the pursuit of society’s goals. whatever those goals may be. Markets Usually Lead to Efficiency No branch of the U.S. government is entrusted with ensuring the general economic efficiency of our market economy—we don’t have agents who go around making sure that brain surgeons aren't plowing fields, that Minnesota farmers aren't trying to grow oranges. that prime beachfront property isn’t taken up by used-car dealerships. that colleges aren't wasting valuable classroom space. The government doesn’t need to enforce efficiency because in most cases the invisible hand does the job. In other words, the incentives built into a market economy already ensure that resources are usually put to good use. that opportunities to make people better off are not wasted. If a college were known for its habit of crowding students into small classrooms while large classrooms go unused, it would soon find its enrollment drop- ping. putting the jobs of its administrators at risk. The "market" for college students would respond in a way that induces administrators to run the college efficiently. A detailed explanation of why markets are usually very good at making sure that resources are used well will have to wait until we have studied how markets actually work. But the most basic reason is that in a market economy, in which individuals are free to choose what to consume and what to produce. opportunities for mutual gain are normally taken. If there is a way in which some people can be made better off. people will usually be able to take advantage of that opportunity. And that is exactly what defines efficiency: all the opportunities to make some people better off without making other people worse off have been exploited. As we learned in the Introduction. however, there are exceptions to this principle that markets are generally efficient. In cases of market failure, the individual pursuit of self-interest found in markets makes society worse off—that is, the market outcome is inefficient. And. as we will see in examining the next principle, when markets fail, government intervention can help. But short of instances of market failure, the gen- eral rule is that markets are a remarkably good way of organizing an economy. When Markets Don’t Achieve Efficiency. Government Intervention Can Improve Society's Welfare Let's recall from the Introduction the nature of the market failure caused by traffic con- gestion—a commuter driving to work has no incentive to take into account the cost that his or her action inflicts on other drivers in the form of increased traffic congestion. There are several possible remedies to this situation; examples include charging road tolls, subsidizing the cost of public transportation. and taxing sales of gasoline to indi- vidual drivers. All these remedies work by changing the incentives of would-be drivers— motivating them to drive less and use alternative transportation. But they also share another feature: each relies on government intervention in the market. This brings us to our fifth and last principle of interaction: When markets don’t achieve efficiency. government intervention can improve society's welfare. That is, when markets go wrong. an appropriately designed government policy can sometimes move society closer to an efficient outcome by changing how society's resources are used. FIRST PRINCIPLES 15 ...
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