12 03 2014 PUP Notes Exam 1 Concepts Public Policy Normative statements Empirical statement Types of values Public Policy o What the government does or doesn t do about public problems Healthcare Environment Education o More intuitive definition Public policy is when government replaces individual choice with collective choice o Problems Healthy care government requires it Immigration society decides this o Justification for public policy In constitution says government can make policy decisions o Tension in public policy Individual liberty vs collective choice In anarchy Thomas Hobbes says life is solitary poor nasty etc Not a pleasant world How do we decide appropriate level of government involvement Normative Statement desirable o Expresses a value judgment about whether something is Subjective an option Uses words like should Not falsifiable Ex people should not pay high tax Empirical statements o Expresses facts about state of world Objective statement of facts if then statements hypothesis falsifiable o Some empirical statements aren t true o Ex if government raises taxes then companies will hire fewer workers Policy Science o Can we study public policy scientifically YES o What is science A long list of empirical statements A method Theory Hypothesis Empirical test Conclusion Revise theory Ex the cry of human behavior gather data perform tests is hypothesis true or false conclusion revise Logic and Policy preference o Preference about policy are usually articulated as normative statements What should or shouldn t government do in situation X o Logical argument statements Connects normative statements with empirical Reaches conclusions about preference for a policy Public policy always involves values Types of Values people often unwilling to compromise on these o Individual liberty o Communitarianism o Civic duty Patriotism o Effectiveness o Efficiency effectiveness o Equity o Feasibility technical and political how well policy achieves objectives how well goals are achieved through cost how societal benefits costs are distributed How possible is policy to put in action technical How much will it cost and how effective will it be Government draws money from you Limits of policy science o We can identify if policies Promote liberty communitarianism or patriotism Achieve efficiency equity effectiveness or are feasible We cannot identify which of these should be prioritized You decide what you value Emphasizes empirical statements Respect other values Value Conflict o Pro choice Women should be able to make choice Practice Logical statement o We should only save endangered species if it doesn t cost too o We should pay professors more this will attract better much Value type efficiency students to FSU Value effectiveness o We should allow people to smoke wherever they want Value individual liberty o We should require mandatory military service Value patriotism 12 03 2014 PUP Notes chapter 1 Concepts Market efficiency Equity Market Failure o Monopolies o Externalities o Information asymmetries o Collective action problems Efficiency o Scarcity implies the need to ration goods and services There are many ways to do this Goods are efficiently providing to the extent that they provide the maximum net benefits to society Net benefits benefits costs Benefits to consumers Costs to producers Put differently there is no way given the current technology that the good can be produces at less cost and still provide the same amount of benefits to society Market efficiency o Market economies allocate goods through the price mechanism o Assertion 1 goods and services open and competitive markets efficiently provide Competition lowers costs of production and therefore lowers prices for consumers Caveat certain conditions must be met o o Example the market for apples What would happen if an orchard used expensive labor paid its workers 20 per hour to pick apples Their apple prices would be higher than other orchards Grocery stores would buy apples from the cheaper The orchard would have to use cheaper labor or orchards go out of business Planned Economies o Isn t there a lot of waste in market economies Planned economy a committee decides how goods and services will be allocated What information does the committee have access to o Generally not as efficient as market economies o o Starting a restaurant You want to serve salad Suppose you were on the restaurant committee in a planned economy What would you have to plan Suppose you are in a market economy and want to start a restaurant What would you have to plan Prices convey a lot of information you can pay the right price you can produce salad you don t have to coordinate anything Equity criteria o That goods are allocated according to need or some other o Does everyone who needs a salad have a salad No some people can but some people cannot o Assertion 2 markets are often inequitable caveat here we re talking about equity in outcomes not in terms of process Market Failures o Instances when free markets produce an inefficient allocation of resources Ex i e we could produce the good more cheaply or that which provides more benefits Monopolies Externalities Collective action problems Information asymmetries o Monopoly Exists when a single business provides a good for which there are no close substitutes ex sports leagues No competition Consequences Antitrust laws Also note oligopolies o Natural monopolies A single business can supply a good or service to the entire market at a smaller cost than could two or more businesses Examples Regulation City of Tallahassee utilities they provide for Tallahassee so if you don t like their price or service you cant really do anything unless you move o Externalities The uncompensated impact of one person s actions on the well being of a bystander Two types Negative externality external cost actions impose costs on a bystander one person s Ex pollution if a company is putting pollutants into air war you didn t ask for that but the company is imposing it onto you anyways Positive externality external benefit person s actions impose benefits on a bystander one Ex getting a vaccine in order to prevent yourself and others from contracting an illness o Information Asymmetry One person in a market transaction has more information than another Incomplete information for consumers to make good decisions on their own Not a problem for certain items ex food Not complex items we can understand their We consume them
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