Chat with AIExam 23: Microeconomic Policy, Economic Reasoning, and Beyond
Define the mainstream model, the public choice model, and the Marxian model, and show how their analysis differs in the case of labor markets.
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VerifiedThe mainstream model looks at how the invisible hand achieves harmony in equilibrium through the market. The public choice model focuses on economic incentives as applied to politicians. The Marxian model focuses on equitable distribution of income, power, and rights among social classes.
The mainstream model looks at the labor market through the supply and demand forces and how they lead to equilibrium. The Marxian model focuses on the tensions among the social classes, and the exploitation of workers by capitalists. Public choice economists see the labor market as individuals using the government to protect their monopolies.
Despite their different political views, liberal and conservative economists agree on many policy prescriptions. Explain why.
(76) VerifiedLiberal and conservative economists often agree on policy prescriptions because they use standard economic models that focus on incentives and individual choice. This means that both liberal and conservative economists look at a policy problem from an "economic" perspective. They believe that economic incentives are important and they tend to expect individuals to choose reasonably. This often leads them to similar conclusions, though not always.
Three reasons why economists have different views on social policy issues are: (1) their views on social policy are influenced by their subjective value judgments, (2) policy must be based on imprecise empirical evidence, and (3) policy proposals can be derived from different economic models. Discuss each of these reasons.
(80) Verified(1) In practice, social goals are vaguely understood and vaguely expressed. Nor is it clear what should be done when policies benefit some people at the expense of others. (There are no Pareto optimal policies.)
(2) Empirical economic evidence is almost always imprecise. Since economic studies always give an incomplete picture of reality, people tend to focus on the evidence that supports their position. Economist's value judgments influence which incomplete study to believe.
(3) A model focuses on certain aspects of reality and ignores others. The choice of which factors to include in a model depends on an economist's value judgments. Models that focus on different aspects of an issue may lead to different conclusions.
When economists with different political views do cost/benefit comparisons, they often reach different conclusions. If their analysis were based on objective costs and valid techniques, why wouldn't they reach similar conclusions, even if those conclusions conflicted with their political beliefs? Explain.
(85) Why is it unlikely that government will be able to correct a failure of a market outcome?
(88) How does the approach used by most economists to analyze regulations differ from that typically used by politicians? Explain.
(84) Give two reasons why economists have different views on social policy issues.
(72) The government is contemplating legalizing, and then taxing crack cocaine. Would the government prefer that the demand for crack cocaine be elastic or inelastic? Explain, using supply and demand diagrams.
(88) Economists' cost/benefit approach to public policy requires them to assign a monetary value to all gains and losses of everything, including life. This is controversial and difficult, and may introduce biases. Explain why.
(81) Consider the following supply and demand diagrams. 
(a) Compute the amount of consumer plus producer surplus in each case.
(b) Which outcome would the majority of society prefer? Explain.
(a) Compute the amount of consumer plus producer surplus in each case.
(b) Which outcome would the majority of society prefer? Explain. (77) How does the "failure of a market outcome" differ from a "market failure"? Failures of market outcomes include distributional issues, rationality problems, and problems associated with inalienable rights. Discuss each of these failures.
(88) Suppose a professional baseball catcher has heard about a new "super deluxe catcher's mask that is guaranteed to protect catchers from being permanently brain damaged by a foul ball to the head." This mask costs $750 and Alias Sports Bureau (a baseball statistics company) has issued a report that using this mask will lower a catcher's risk of serious brain damage due to a foul ball to the head from 2/250,000 to 1/250,000. The baseball catcher eagerly buys this mask. By purchasing this mask, what is the implicit value the catcher is placing on his brain?
(73) What three things must the government do in order to correct a failure of the market?
(77) When does the government contribute positively to economic policy? When does it contribute negatively?
(73) The Safety Commissioner for the state of North Dakota is contemplating requiring anyone who applies for a hunting license to take a gun safety class. The state's insurance commissioner has determined that taking this course will reduce the likelihood of a self-inflicted mortality by 1/1,000,000. Recent work by an economist at the University of North Dakota indicates that hunters in North Dakota value their lives at $5,000,000. Since the Safety Commissioner is up for re-election soon, he wants to make sure the cost to hunters of the program is not too high. What price should he charge hunters for this safety class? Why might N.D. offer the course for less than the expected benefit to hunters? Explain.
(77) What are the three ways that economists' value judgment creeps into their analysis?
(82) How does the approach that most economists use to analyze regulations differ from the approach that is typically used by politicians? Explain.
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