A Series of economic policies designed to reduce the role of government in an economy replacing government control with market incentives.
Structural Adjustment Policies
Characteristics of Market Economies:
Who owns? | The government owns the resources | Private ownership of resources Who decides: | the government; central planning | the market, consumer sovereignty, "dollar
votes" Role of government: | the government controls the economy | Limited role for government - see chapter 5 or
below 5Es - Economic Growth: | lack of incentives therefore less economic
growth | incentives promote economic growth 5Es - Productive
Efficiency: | productively inefficient | the profit motive promotes productive
efficiency 5Es - Allocative
Efficiency: | allocatively inefficient | the profit motive promotes allocative
efficiency 5Es - Equity: | government control may achieve more equality,
but equity? | nothing to assure equity, may be a role for
government 5Es - Full Employment | full employment achieved | economists disagree, may be a role for
government Role of International
Trade: | self-sufficiency | Free trade Guiding Resources: | the "coordination problem" | the "guiding function" of prices Allocating Goods and
Services: | queuing = long lines | the "rationing function" of prices Role of Incentives: | the "incentive problem" | incentives are fundamental, help achieve
efficiency "Greed" or "Social Good": | based an achieving the "social good", what is
best for society, but inefficiencies hurt
society | based on greed or "self-interest. Result is
efficiency which is good for society; this is he
"invisible hand" of capitalism Role of Government: | Government controls the economy Limited role of government includes: | | | | | | | | | | |
1. providing the legal structure
2. maintaining competition
3. redistribution of income
4. reallocation of resources
a. spillover costs
b. spillover benefits
c. public goods and
services
5. promoting stability
a. achieving full
employment
b. achieving low inflation