Markets, e ciency and
public policy
ffi
, Intro
* So far in EKN 244 we have learnt about ...
& Individual choice , supply demand and equilibrium
,
·
Monopoly labour market model and how and fairness shape behaviour in the
power ,
wages
labour market
& Real markets may fail dus to externalities , power and incomplete contracts .
We will now connect these topics to ask the
BIG QUESTION :
When and how should policy intervene to improve both efficiency and fairness ?
- - -
~
/ S
LL
·
Economic policy is Efficiency + fairness are 2 key principles that
where theory meets real world
economists use to assess how well markets perform .
· We face constant policy trade-offs ;
Efficiency=
allocating resources in a way that
4
maximizes total welfare
achieved when no one can be made
better off wo else
making someone
worse off (Pareto Efficiency (
-
* Good policy seeks to expand the
economic pie (efficiency) while
also fairness = concerns how the total welfare is divided
(Equity (
deciding how that pic should be
among
individuals I
groups
divided (fairness) focusing on
justice , equality and
opportunity.
* We need economic policies to
intervene when markets fail to
deliver outcomes that are both
efficient & fair
public policy
ffi
, Intro
* So far in EKN 244 we have learnt about ...
& Individual choice , supply demand and equilibrium
,
·
Monopoly labour market model and how and fairness shape behaviour in the
power ,
wages
labour market
& Real markets may fail dus to externalities , power and incomplete contracts .
We will now connect these topics to ask the
BIG QUESTION :
When and how should policy intervene to improve both efficiency and fairness ?
- - -
~
/ S
LL
·
Economic policy is Efficiency + fairness are 2 key principles that
where theory meets real world
economists use to assess how well markets perform .
· We face constant policy trade-offs ;
Efficiency=
allocating resources in a way that
4
maximizes total welfare
achieved when no one can be made
better off wo else
making someone
worse off (Pareto Efficiency (
-
* Good policy seeks to expand the
economic pie (efficiency) while
also fairness = concerns how the total welfare is divided
(Equity (
deciding how that pic should be
among
individuals I
groups
divided (fairness) focusing on
justice , equality and
opportunity.
* We need economic policies to
intervene when markets fail to
deliver outcomes that are both
efficient & fair
