ECON 2010 Chapter Notes - Chapter 8,17,18: Regressive Tax, Progressive Tax, Redistribution Of Income And Wealth
1 Jun 2016
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Invisible hand framework- if markets are perfectly competitive, they will lead individuals to make voluntary choices that are in the society"s interest. If actions don"t lead toward the social good, it"s called a market failure- where invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes. 3 sources of market failure: externalities, public goods, and imperfect information. Externalities- the effects of a decision on a third party that are not taken into account by the decision maker. Can be negative that are detrimental to others (secondhand smoke) or positive that are beneficial to others (education) When there are externalities, the supply and demand curves no longer represent the marginal cost and benefit to society. Someone builds a steel plant and starts producing; the resulting smoke from the plant pollutes the air its neighbors breathe; the people involved in the market trade are better off but those external are worse off negative externality.
