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Public policy in competitive markets, for the bad and for the good

Summary:
In this seventh lecture of Economics for Everyone, we address the nature of government intervention in perfectly competitive markets. Perfectly competitive markets lead to efficient outcomes, in the sense that no one can be made better off without making someone worse off. But that doesn’t mean we like the outcomes, that they are fair or justice, and as a result governments are often pressured, or even captured, to intervene, sometimes not for the broader social good, but for the benefit of a few to the cost of many. At the same time competitive markets don’t always lead to efficient outcomes because prices don’t may not reflect all social costs and benefits. So we may have too much, or too little ,of some goods if we let the market work. Governments are often pressure to

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In this seventh lecture of Economics for Everyone, we address the nature of government intervention in perfectly competitive markets.

Perfectly competitive markets lead to efficient outcomes, in the sense that no one can be made better off without making someone worse off. But that doesn’t mean we like the outcomes, that they are fair or justice, and as a result governments are often pressured, or even captured, to intervene, sometimes not for the broader social good, but for the benefit of a few to the cost of many.

At the same time competitive markets don’t always lead to efficient outcomes because prices don’t may not reflect all social costs and benefits. So we may have too much, or too little ,of some goods if we let the market work. Governments are often pressure to intervene for the benefit of many, but also at the costs  of some.

In this lecture, we work through a number of practical examples to illustrate rent-seeking behaviour in which a group can capture government policy to their benefit, and we also discuss market failures, and the consensus view of economists that these should be corrected with appropriate taxation. Agricultural support programs are one example, and putting a price on carbon is another.

Download the presentation for Lecture 7, “Understanding public policy in competitive markets” as a pdf, and if you like listen to narrated version.

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