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Chapter 30 Analyzing Public Sector Economic Activity To
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I. Demand for public goods
II. Accounting for externalities
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MCS is marginal cost to society MGS is marginal gain to society MRPP is marginal revenue product of pollution
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2. Other solutions
III. Democracy and economic efficiency
A. Majority
rule is often inefficient
1. A
slight majority of people may vote less public spending in an area because
their perceived benefit is slightly
below the
good's average cost they would pay as a taxpayer.
2.
Those voting for the activity (the minority) would receive a benefit
substantially greater than the average costs.
3. As a result
society does not invest in something with a positive total return.
4. An example
would be people who feel spending on education is not
beneficial and vote for less spending in spite
of the
substantial benefit received by children.
5. The public
good is voted less money even though total benefit
exceeds total cost.
B. Rent-seekers are people attempting to use public policy to secure
economic rent for themselves at the expense
of consumer surplus and in some
cases, the public interest.
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SC is surplus going to consumers SR is surplus going to rent-seekers
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C. Special interest groups are composed of a few people with much
to gain from a political outcome.IV. An attempt to apply cost-benefit analysis to government regulation
A.
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Regulation1 |
Annual Deaths Per 100,000 Exposed |
Cost Per Life Saved |
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Mandatory seat belts |
9.1 |
$390,000 |
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Prohibit alcohol and drug use by railroad workers |
.2 |
$650,000 |
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Control and disposal standards for benzene |
2.1 |
$4,000,000 |
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Disposal standards for uranium waste |
43.0 |
$69,000,000 |
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Restrictions on worker exposure to asbestos |
6.7 |
$117,000,000 |
| 1"Bringing Reason To Regulation," Louis S. Richman, Fortune, October 19, 1992 | ||
B. Read Grandfather Government Regulation Cost Report - by MWHodges for a conservative view. Liberal view is hard to find.
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