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Part 1: Government's Microeconomic Goals - Coggle Diagram
Part 1: Government's Microeconomic Goals
Goals of Govt
Efficiency
Allocation of resources
2 Types
Allocative Efficiency (based on what economy needs)
Productive Efficiency (Max output of given goods)
PPC Curve
Equity
Equal distribution of resources (often normative)
3 Types of inequality
Income
All types of money received, e.g. wages, bonuses, investments, pensions
Wages
Only money earned from employment
Wealth
Total assets an individual has
Income can be measured in 2 ways
Functional distribution (income diff btwn consumers and firms)
Size distribution (Gini coeff) 0= equality, 1= inequality
Supply and Demand curve
Assumptions of free market
No govt intervention
All decisions made are rational
Consumers have PERFECT information
PERFECT competition (no monopoly in market)
PERFECT mobility of resoruces
No externality (3rd party effects)
Allocative Efficiency
MSB=MSC
MSB: Additional benefit that society places on the good when an additional unit is produced/ consumers
MSC: Additional cost that uses society resources when an additional unit is produced/ consumers
Benefit Cost and Output diagram