ECO 2110 Study Guide - Midterm Guide: Aggregate Demand, Progressive Tax, Pigovian Tax
8 Oct 2015
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Document Summary
Develops principles for understanding the economic role of government. Establishes cause and effect relationships between economic variables. Must be a market for each good. Each market must be purely competitive: no one has market power. Government role limited to: property rights, production of pure public. Competitive market mechanisms lead to pareto efficient outcomes. Society can attain any pareto efficient allocation of resources by making suitable assignment of initial endowments and then letting people freely trade with each other: by redistributing income. Once property rights have been established, no government interactions is required to deal with externalities. Real cost of government-produced goods and services is the value of private goods and services foregone. Government output is hard to account for because government goods are generally not sold or produced in easily measurable units. Government goods and services are not rationed by prices. When people consume more of one good and less of another. Will have no effect if goods are unrelated.
