Political Science 1020E Lecture Notes - Lecture 4: Pareto Efficiency, Social Cost, Planned Economy
30 Dec 2015
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Pg 170-190 ethics and public policy: the free market. Against free market: safety: 1) one persons purchasing decisions will effect others. (externalities: monopoly, there is no free market, asymmetry of knowledge: seller of product knows much more about it thn purchaser. Market transaction if all goes well= pareto improvement: makes at least one person better off and no one worse off. Market transaction if entered freely and reasonable knowledge on each side, both parties typically be better off; unless there are externalities, no one else will be affected positively/ negatively. Adam smith: long term- only way possible to make profit in sustainable way is by giving people what they want. It is not from benevolence of butcher, brewer, or baker, we expect our dinner but from regard to their own self interest. (their advantages) Extended smiths argument: emphasized benefits not just of market transactions but of the entire profit system.
