2203523
| Question | Answer |
| What is Economic liberalization ? | It is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities; the doctrine is associated with classical liberalism. Thus, liberalisation in short is "the removal of controls" in order to encourage economic development |
| What stressed the role of market ? | Pre-World War II liberalism and neoclassical development theories of the 1950s stressed the role of the market. |
| What school of thoughts in 1960s stress the role of state ? | dependency theory, growth-with-equity, import substitution industrialization |
| Debt crisis 1980s | - highly indebted Latin America and other developing regions were unable to repay the debt, asking for help. 1982 as Mexico declared inability to service its international debt, and the similar problem quickly spread to the rest of the world |
| After 1990s, following the debt crisis, what kind of approach is in place in regards to state's policies and its role ? | Since the 1990s, there has been a more balanced approach, recognizing market failures without denying the important role of the market (institutional economics). |
| What do most economists believe in regards to the private sector incentive ? | Most economists agree that market forces, based on private sector incentives, lead to efficient outcomes in general, such that no public market interference is required. |
| What are the types of state intervention ? | Broadly, there are two types of state intervention, (A) efficiency-oriented interventions (that increase aggregate welfare), and (B) non-efficiency-oriented interventions (that have other objectives). |
| What is efficiency oriented intervention ? | This implies that, market forces lead to the most efficient outcome, so that any state intervention could only worsen the outcome. But in some cases like in the condition of market failure, state intervention increases efficiency. |
| What is market failure and what does it includes ? | Market failure is a situation in which the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. It includes: •Public goods •Externalities •Market power •Transaction costs |
| What are the typical characteristics of public good ? | • Non-rivalry: use by one does not preclude use by others. • Non-excludability: no one is excluded, even if he/she does not pay (free-rider problem) |
| what will happen in case of externalities ? | In the case of externalities, the costs and benefits of a good are not fully reflected in the market price. |
| What are positive externalities ? | • Flowering rapeseed field / cows on mountain pastures • Education • Public health and nutrition |
| What are negative externalities ? | • Smoking in restaurants and other public places • Pesticide residues in groundwater and food • Lowering of groundwater table through overpumping |
| For most efficient outcome and competitiveness what should state promote ? | The state should promote competitive markets through reducing entry barriers, promoting transparency, and enforcing antitrust laws. |
| What are transaction costs ? | Market transactions usually involve costs such as search, monitoring, and contract enforcement costs. |
| What is the impact of high transaction cost how it can be reduced ? | • TC lead to information asymmetries. • When transaction costs are too high, markets fail or they do not emerge in the first place.Transaction costs increase with bad infrastructure and inefficient institutions so to reduce TC improvement in this side is necessary. |
| What are non-efficiency oriented interventions ? | Emergency relief- interventions based on humanitarian grounds. Redistribution: The outcomes of the market might be efficient but inequitable Security: Price stablization policies for smooth consumption- imp for poor. Sustainablitiy: Cautious use of natural resources take account for future generation. |
| Give example of efficiency oriented policies ? | • Infrastructure • Marketing policies • Agricultural research and extension • Irrigation |
| What are non-efficiency oriented policies ? | • Income transfers • Land reform • Direct nutrition interventions |
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