Government Intervention (week 7)

Market inefficiencies

-the market does not produce enough socially desirable goods and services

-providing goods and services the private sector does not supply

Externalities

a consequence of an economic activity or decision that impacts upon unrelated third parties

Private costs

-the expenditure by producers in producing a good/service

-the cost occured by consumers in buying good/service

Private benefits

-the profit made by producers in selling goods/services

-for consumers the satisfy their needs and wants

social cost

-cost of producing g+s + additional costs

social benefit

total benefit from consuming a g+s + positive spillovers

negative externalities

a negative externalities is a cost suffered by a third party as a result of an economic transaction

Positive externality

a benefit by a third party as a result of an economic transaction

benefits

-development of renewable energy source

-research of new technologies

-vaccinations

how does the gov correct externalities

-through market based policies, and grants to producers/consumers

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Why do governments stabilise the economy to reduce inflation

if the economy is growing too quickly, inflation will result as demand will pull prices up

To reduce unemployment, if the economy grows too slowly, demand will fall, and businesses may be forced to lay off workers.

COME ON

types of fiscal policies

expansionary is when there is a budget deficit and contractionary when there is a budget surplus

budget surplus

government receipts > government spending

budget deficit

government receipts < government spending

GREAT