ECON 2010 Lecture Notes - Lecture 10: Social Safety Net, Price Ceiling, Price Controls

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9 Feb 2017
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Lecture 10 Notes: Government
2/8/17
Role of government
- Political ideology has a big impact on how people view govt. role in economy
o Wealth redistribution vs. right to earnings
o Public vs. private health care
o Regulation vs. freedom in business
o Private charity vs. government support
o Price controls like minimum wage or rent control
Economic questions and government
- Which kinds of tax policies will generate revenue most differently?
- What kinds of things should be taxed?
- What are the distributional effects of a minimum wage
Size of government
- Benefits of a large government
o Social safety net
o Good infrastructure
o National defense
- Detriments of a large government
o Higher taxes take money from private sector of the economy
o Distortion of incentives
o Bureaucratic waste?
- Optimal size of government is hard to determine
Deficit vs. debt
- Deficit
o Annual difference between federal revenue and expenditure
- Debt
o All of the deficits added together
Market regulation
- Some regulation is probably wasteful
o Doctors and lawyers should have licenses but what about make-up artists,
locksmiths, etc.?
- Some regulation is probably important
o US government imposes laws against products containing dangerous chemical
that are hard for consumers to detect
Role of economics
- Range of valid beliefs
Government policy
- Gov. tries to correct bad market outcomes
- One of the tools it has to influence markets is a price control and there are 2 main types
- Price ceiling cannot legally buy or sell above this price
- Price floor cannot legally buy or sell below this price
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