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Doing Good in the World – Recap

Explore the mandates and limits of government intervention in markets, considering the impacts on producers, wages, employment, poverty, and child labor. Delve into alternative policies, protectionism, and government tools for efficient market outcomes. Review the role of government in perfect versus imperfect markets, addressing market failures and efficiency. Discuss the complexities of government intervention through real-world cases and in-depth analysis. Prepare for your final exam with a comprehensive review of key concepts such as product safety, externalities, and corporate social responsibility.

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Doing Good in the World – Recap

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  1. Doing Good in the World – Recap • Mandates & Limits • Mandates on producers increase production costs • Examples: minimum wages, fewer hours, health & education • Higher costs without higher willingness to pay lowers employment and wages • Who wins and who loses from an external policy? • Because lower wages & employment means lower incomes, we must ask: • Does limiting child labor increase or decrease schooling? • What do children do if they can’t “officially” work? • Does mandating higher wages increase or decrease poverty? • Do high wages keep the least skilled out of the best jobs? • Does mandating higher wages increase or decrease child labor overall? • If the poorest cannot qualify for high wage jobs, do children work more? • Who is in the best position to answer these questions and pick winners & losers? • Is cultural imperialism ever justified? Under what conditions? • If a democratic government sets labor policy, can we infer that these standards maximize welfare? • Would the US accept the standards we seek to impose? • Alternative Policies • Higher costs with higher willingness to pay maintains employment and wages • What can be done to increase consumer willingness to pay? • What if consumers aren’t willing to pay? • Higher demand raises employment and wages • What can be done to raise demand? • Complicating Factors -- Protectionism

  2. Semester Recap & Review • Rationales for Government Intervention • Efficiency (Market Failure) • Redistribution (Equity) • Political Incentives

  3. Tools of Government Intervention • Regulation • Price Controls (Electricity, Wages, Crops) • Entry Controls (Beauty, Radio, Taxi, Cable) • Product Controls (Drugs, Toys) • Process Controls (Discrimination, Emissions) • Information Controls (Warning Labels) • Competition Controls (Price Fixing) • Access to Courts (Product Liability) • Taxes • Public Provision or Allocation

  4. Government in Perfect Markets • Ideal Markets are Efficient (Maximum Social Benefit) • All goods with value>cost get produced • No goods with cost>value get produced • Efficiency Conditions • Perfect Competition • Perfect Information • Clear Property Rights • No Entry/ Exit Barriers • Rational Actors • Role for Government in Efficient Markets • Assign and protect property rights (Coase) • Enforce contracts • Establish desired distribution of wealth

  5. Government in Imperfect Markets • Imperfect Competition • Antitrust • Market Failures • Natural Monopoly (Utility Deregulation) • Externalities (Environmental Regulation) • Public Goods (Intellectual Property) • Asymmetric Information (Product Safety) • Transaction Costs (Coase Theorem)

  6. What about Imperfect Government? • Efficient Government Intervention • Wilson Matrix • Collective Choice • Political Incentives • Market Failure versus Government Failure

  7. Final Exam -- Admin • Office Hours on Friday 9:30 -11:30 (by appointment) • Section 1 • 1415 Biomedical and Physical Sciences Building • Thursday 10am • Section 2 • 1410 Biomedical and Physical Sciences Building • Monday 3pm • Time: 90 Minutes • Format: Multiple Choice, Short Answer, Problems • Other: No Notes, No Calculators • Grades: See Web Site on May 2

  8. Final Exam Review Sheet • Product Safety • Safety & Efficiency • Expected Value Calculations (How & Why) • Regulatory Approaches (Theory & Practice) • Command & Control, Liability System, Informed Consent • Cases: GM Foods, California Space Heaters • Externalities • Externalities & Efficiency • Regulatory Approaches (Theory & Practice) • Taxes, Command & Control, Market Mechanisms (Tradable Permits) • Coase’s Approach (Theory & Practice) • Cases: Acid Rain & Global Warming, Urban Air Rights • Corporate Social Responsibility • Efficiency Perspective vs. Responsibility Perspective • Implementation Issues • Effects of CSR mandates & alternative approaches • Cases: Nike in Southeast Asia, Child Labor • Cumulative Issues Applied to Current Topics • Political Incentives (Wilson) • Cost of Redistribution • International Trade

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