Policy - What is policy Why is policy making difficult...

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–What is policy? Why is policy making difficult? * Policy is a way to decide rules/laws that people of a society must follow. They are usually implemented when there is some failure in the free-market system and there is a need to correct a problem. It can be difficult because not everyone agrees on what is the best way to solve a problem. –How is policy related to scarcity? * Everything can be scarce. Every decision is made to allocate your resources in what is seen as the best for you or society. This scarcity imposes limits which policy tries to then allocate the resources in the best manner. –Why does the concept of rationality matter for policy? * Policy makers assume that people will act rationally and therefore make decisions that people will when faced with a decision, they will make the rational choice. When making any decision, one should make a cost-benefit analysis and choose the choice that is better for them. That is how policiy should be implemented….It takes into account consumers’
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Unformatted text preview: preferences and assumes they will try to satisfy them in the most efficient way possible. –Can you represent supply and demand curves for air? Or time machines? * Yes you can since they are –Why are indifference curves important for policy analysis? How can we tell what they look like? * They show which bundles are all equally attractive to the original bundle. It allows us to know that the person, if they are rational, should be satisfied with all of the bundles along their indifference curve. You can tell what they look like by using the marginal rate of substitution to see how many of which unit you would choose over another. They –Why are the income and substitution effects important for policy analysis? What do they tell us? * They tell us at what goods a consumer is willing to exchange one good for another. –Why is price elasticity important for policy? * It can help determine how people will react if there is a price change and how that will affect total expenditure....
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  • Fall '13
  • WEBER
  • free-market system

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