1PRINCIPLES OF MACROECONOMICS Table of Contents Good Economic versus Good Politics........................................................................................2 Public goods...............................................................................................................................2 References..................................................................................................................................3
2PRINCIPLES OF MACROECONOMICS Good Economic versus Good Politics Most of the times good economics and good politics are at conflicting state. One example can be price ceiling. This refers to a situation when government sets a legal maximum price of a good. Rent is an example of such policy. As government imposes ceiling on rents, demand for house increases but supply of good house falls. This will result in black markets and bad quality houses1. This is good political policy as more people can afford house but is bad economics as it leads to black market. Good politics often associated with good economics as well. International trade us definitely a good politics as it enhance relation among countries. From economic point of view also, trade is good as it raises GDP, foreign reserves and currency strength. Public goods Non-rivalry and non-excludability are the two distinctive features of public goods. However, because of these two characteristics free market fails to ensure efficient allocation of public goods. As no one can be excluded from using a public good once the good is served, people has a tendency to free ride. Because of free rider problem, no one has any incentive to reveal the actual willingness to pay. The demand curve thus cannot reflect marginal benefit to the society. Public goods thus cannot be efficiently produced by private market2. In general, public goods though are non-excludable but in some situation, it may be an excludable one. Public good is excludable when there is a nominal cost creating barriers to consumption of the good. An example is post office. The service though is provided for public low cost like stamps people not paying for stamps from using the service. References 1Acemoglu, Daron, and James A. Robinson. "Economics versus politics: Pitfalls of policy advice."Journal of Economic Perspectives27.2 (2013): 173-92. 2Baumol, William J., and Alan S. Blinder.Microeconomics: Principles and policy. Nelson Education, 2015.
3PRINCIPLES OF MACROECONOMICS Acemoglu, Daron, and James A. Robinson. "Economics versus politics: Pitfalls of policy advice."Journal of Economic Perspectives27.2 (2013): 173-92. Baumol, William J., and Alan S. Blinder.Microeconomics: Principles and policy. Nelson Education, 2015.