Why Do We Need Policy?
POLICY
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Bander
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Use.r
CHAPTER (3)
Why do we need policy?
R.HEILBORNER and L THURROW, (1982).
Main reasons for market failure. 1. Lock of information. 2. ‘Pure public goods.’ which cannot be allocated efficiently by private markets. 3. Imperfect competition.
Lack of information.
When marketers lack information or have inadequate information, the results of the market will reflect ignorance, luck or accident rather than informed behavior. Typically consumers guide themselves by advertising and casual information e.g. by advertising. Thus a certain amount of ignorance always remains in all markets, causing prices and quantities to differ from what they would be if we had complete information.
Pure public goods.
Examples: education, public health, defense, weather service, lighthouses, law and order public institutions.
Characteristics:
1. Consumption of a public good by any one individual does not interfere with its consumption by another.
2. No one can exclude from the use of a public good.
3. No way that we can, by ourselves buy defense, laws and order services or a weather service.
Accordingly then is no way to set up a market.
Externalities.
Examples: • Smoke from local factories. • Sludge pouring from a mill into a lake. • Wastes, dirt, noise, and congestion. • Speed limits.
Externalities bring into focus a very series problem in our economic system: controlling pollution which in the production of wastes dirt, noise and congestion.
Main ways of controlling pollution:
1. Enforce laws and regulations to reduce pollution.
2. Tax firms which produce waste and dirt (after called effusent charges).
3. Subsidize polluters to stop polluting (e.g. pay households to return old cans and bottles to factories).
Lengthening time horizons.
Examples: • Investment in education, infrastructure, research and development(R&D) health care for the elderly and
.
Bander
.
Use.r
CHAPTER (3)
Why do we need policy?
R.HEILBORNER and L THURROW, (1982).
Main reasons for market failure. 1. Lock of information. 2. ‘Pure public goods.’ which cannot be allocated efficiently by private markets. 3. Imperfect competition.
Lack of information.
When marketers lack information or have inadequate information, the results of the market will reflect ignorance, luck or accident rather than informed behavior. Typically consumers guide themselves by advertising and casual information e.g. by advertising. Thus a certain amount of ignorance always remains in all markets, causing prices and quantities to differ from what they would be if we had complete information.
Pure public goods.
Examples: education, public health, defense, weather service, lighthouses, law and order public institutions.
Characteristics:
1. Consumption of a public good by any one individual does not interfere with its consumption by another.
2. No one can exclude from the use of a public good.
3. No way that we can, by ourselves buy defense, laws and order services or a weather service.
Accordingly then is no way to set up a market.
Externalities.
Examples: • Smoke from local factories. • Sludge pouring from a mill into a lake. • Wastes, dirt, noise, and congestion. • Speed limits.
Externalities bring into focus a very series problem in our economic system: controlling pollution which in the production of wastes dirt, noise and congestion.
Main ways of controlling pollution:
1. Enforce laws and regulations to reduce pollution.
2. Tax firms which produce waste and dirt (after called effusent charges).
3. Subsidize polluters to stop polluting (e.g. pay households to return old cans and bottles to factories).
Lengthening time horizons.
Examples: • Investment in education, infrastructure, research and development(R&D) health care for the elderly and