ECON 1 Lecture Notes - Lecture 2: Absolute Advantage, Comparative Advantage, Market Failure
Document Summary
Central idea: government may alter market outcome to promote equity. If the market"s distribution of economic well-being is not desirable, tax or welfare policies can change how the economic pie is divided. Big idea #8 - economic booms and bursts cannot be avoided but can be moderated. Central idea: policymakers use fiscal policy and monetary policy to attempt to smooth out this economic volatility. Define fiscal policy - the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. Define monetary policy - the process by which the government controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. Define market failure - when the market fails to allocate society"s resources efficiently. One way to account the outcomes of our actions. Externalities - when the production or consumption of good affects bystanders (pollution)
