Microeconomic Policy

Microeconomic Policy

A New Perspective

Clem Tisdell and Keith Hartley

This thoroughly accessible textbook shows students how microeconomic theory can be used and applied to major issues of public policy. In this way, it will improve their understanding of both microeconomic theory and policy and also develop their ability to critically assess them. Clem Tisdell and Keith Hartley have expanded upon their previous successful work on microeconomics. As a result, this new book is considerably updated with substantial chapter revisions, as well as new chapters dealing with business management, ownership, environmental issues, public choice, defence, conflict and terrorism.

Chapter 2: Why do Governments Need Microeconomic Policies?

Clem Tisdell and Keith Hartley

Subjects: economics and finance, industrial economics


INTRODUCTION As pointed out in the previous chapter, economics, particularly microeconomics, is primarily concerned with studying the reasons for the existence of scarcity, and the impacts of different social mechanisms for resource use or the extent, distribution and nature of scarcity. The study of these social mechanisms includes the use of market mechanisms and these are given the greatest attention by microeconomists. The focus of microeconomics implies that some of its major objectives are to find policies that will minimize scarcity and to predict in a social context the implications of government policies for scarcity. For example, a government policy that subsidizes the production of one commodity and reduces its scarcity may add to overall scarcity because it reduces the supply of other valued commodities that are forgone. An opportunity cost is incurred in a fully employed economy; the opportunity cost being the supply of other commodities forgone. However, it should be borne in mind that scarcity reduction is not the only goal of government policy and that human values often include additional considerations. Different economic systems impinge on social relationships in different ways. If an economic system results in less scarcity than another it may be rejected by some individuals because in their view it has other negative consequences. For example, libertarians (such as some members of the Austrian School of Economics, see Chapter 3) may reject some scarcity-reducing economic policies because these policies restrict the liberty or perceived rights of individuals, for example in their...

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