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Intervention

Intervention

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Published by hishamsauk

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Published by: hishamsauk on Mar 21, 2011
Copyright:Attribution Non-commercial

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12/16/2012

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E
CONOMICS OF
S
OCIAL
P
OLICY
:I
NTERVENTION
,R
EDISTRIBUTION
 
I
NTERVENTION
Two economic reasons why a state may intervene in anygiven market:
1)
EFFICIENCY
reasons
2
)
EQUITY
(S
ocial Justice) reasons
If it decides to intervene, there are six different possiblecombinations of intervention:
1)
Public Provision + Public Finance (NHS
)
2
)
Public Provision + Private Finance (PublicTransport
)
3)
Private Provision + Public Finance (Vouchersystems
)
4)
Private Provision + Private Finance (Food
)
5)
REGULATION
6
)
INCOME TRANSFERS (Most desirable are LumpSum as they don·t distort the market
)
 
I
NTERVENTION FOR
E
FFICIENCY 
Efficiency is important as it allows the best use of limited resources ² there are THREE differenttypes of efficiency:
I: PRODUCTIVE Efficiency
(
operate on thePPF)
II: PRODUCT-MIX Efficiency
(M
RT
S
=
M
R
S
,on the point where the indifference curve istangential to the PPF)
III: CONSUMPTION Efficiency
(M
R
S
 amongst consumers is equal, two indifferencecurves in the Edgeworth Box are tangential)
The Last 2 efficiency criteria are necessary forALLOCATIVE EFFICIENCY to hold.

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