TAILIEUCHUNG - Lecture Economics (9/e): Chapter 23 - David C. Colander

Chapter 23 - Microeconomic policy, economic reasoning, and beyond. In this chapter you will: List three reasons why economists sometimes differ and sometimes agree in their views on social policy, explain the cost/benefit approach the typical economist takes to analyze regulations, describe three types of failure of market outcomes, explain why most economists are doubtful government can correct failure of market outcomes. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals List three reasons why economists sometimes differ and sometimes agree in their views on social policy Describe three types of failure of market outcomes Explain the cost/benefit approach the typical economist takes to analyze regulations Explain why most economists are doubtful government can correct failure of market outcomes 2 Economists’ Differing Views About Social Policy Economists’ views on social policy differ widely because: They have different underlying values They interpret empirical evidence differently They use different economic models Any policy proposal must embody both economic analysis and value judgments because the goals of policy reflect value judgments 3 How Economists’ Value Judgments Creep into Policy Analysis Interpretation of the Policymaker’s Values In practice, social goals are vaguely understood and vaguely expressed Some economists have argued that economists should recommend only Pareto optimal policies Pareto optimal policies are policies that benefit some people and hurt no one Pareto optimal policies don’t exist because all policies make some people better off and some people worse off 4 How Economists’ Value Judgments Creep into Policy Analysis Choice of Economic Models An economist’s choice of models, which focus on certain aspects of economic reality, is influenced by value judgments Some economic models are: Mainstream economic analysis is presented in the text and includes the standard supply/demand model Marxian (radical) focuses on equitable distribution of power, rights, and income. Public choice focuses on economic incentives as applied to politicians 5 Economists’ Cost/Benefit Approach to Government Regulation The cost/benefit approach to problems - assigning costs and benefits, and making decisions on the basis of the relevant costs and benefits This requires the determination of a quantitative cost and benefit

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