Chapter 9: The Economic Foundations and Effects of a Policy for the Family
Page 146 9. The economic foundations and effects of a policy for the family 1 PARENTS AS PRODUCERS OF EXTERNALITIES One of the basic theorems of economic analysis is that equilibrium in a market with perfect competition amounts to a situation of social optimum.1 However there are many cases in which this situation is not reached because one of the basic premises of market functioning fails. The clearest case is obvious, that of pure public goods. When providing such goods—for which the most representative example is the national defence—the market is not the most efficient institution because they do not meet the requirement of the existence of different levels of demand and it is not possible to prevent them from being utilized by those people who are not prepared to contribute to financing them. But there are also other cases which are very common in today’s world and in which, although not governed by the same conditions as pure public goods, activities take place which affect the public sphere. In them, the economic agents either cannot appropriate all the profits their action has generated or they do not have to pay all the costs they have caused. These are the socalled external economies and diseconomies. A classic example of the latter can be found in companies that contaminate the environment and which force many people who do not benefit at all from the activity of these companies to pay costs in the form of contaminated water or...
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