Summary EKN244 - Markets, efficiency and public policy

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