ECON 110 Chapter Notes - Chapter 16: Indirect Costs, Paternalism, Rational Ignorance

• School: Queen's University
• Department: Economics
• Course: ECON 110
• Professor: Ian James Cromb

Document Summary

Chapter 16 market failures and government intervention. The operative choice is not between an unhampered free-market economy and a full centralized command economy. It is rather the choice of which mix of markets and government intervention best suits people"s hopes and dreams. When the government"s monopoly of violence is secure and functions with effective restrictions against its arbitrary use, citizens can safely carry out their ordinary economic and social activities. Market failure: describes a situation in which the free market, in the absence of government intervention, fails to achieve allocative efficiency. Externality: an effect on parties not directly involved in the production or use of a commodity. Private cost the value of the best alternative use of resource used in production as valued by the producer. Social cost: the value of the best alternative use of resources used in production as valued by society. Discrepancies between private cost and social cost occur when there are externalities.