Economy of Ireland (EC2020) Tutorial 4 MT Term Teaching Week 6

Economy of Ireland (EC2020) Tutorial 4 MT Term Teaching Week 6

Plan for today Any issues/questions? C1 (i) What is the rationale in principle for government in a market economy? C1 (ii) Why must some of these functions be applied increasingly at a global and in particular in recent years at an EU level? C1 (iii) What further issues arise in relation to EU integration? Class Test

C1 (i) C1 (i) What is the rationale in principle for government in a market economy? Think of the absurdity of no government! Anarchy Hobbesian state of nature

C1 (i) (a) Referee - sets the rules of the game. i) A central authority and legal system are needed for contracts that govern economic activity - - design and enforce rules that allow economic activity to take place Property rights etc. ii) Empirical evidence no rule of law leads to poor economic performance (insights from institutional economics)

C1 (i) (b) Correct Market Failures/efficiency i) Pure public goods (non-rival and non-excludable) infrastructure, military etc. non-excludable prevents market provision pay for with tax ii) Externalities Positive: rival & somewhat excludable Negative: producer isn t paying (all?) costs Under/Over produced iii) Monopoly power Firm maximizing behavior - prices too high, output too low

C1 (i) iv) Imperfect information Risk assessment - - incomplete credit/insurance markets Provision or subsidization - But, government failure? It s not clear that there is a more efficient outcome - electoral pressures, lobbying, inefficient public sector (c) Redistribution: Efficient outcome is not not necessarily the fair outcome (general equilibrium theory).

C1 (i) i) Success as a random walk Distribution depends on luck e.g. A lot of economic outcomes are random. E.g. weather. Hence voters demand redistribution ii) Other arguments for redistribution iii) Caveats: E.g. too high taxes can distorts incentives E.g. mobile factors may move (EU).

C1 (ii) C1 (ii) Why must some of these functions be applied increasingly at a global and in particular in recent years at an EU level? If you had the power to solve one issue in the world what would it be? Could this issue be dealt with at a national level, or does it require a level of super-national power? Always ask what is the best level of governance for a particular issue to be dealt at e.g. global, supra-national (EU), national, local, individual subsidiarity principle and efficiency arguments (bi-lateral VS multilateral and scale economies) Lots of information here you have to choose what to use!!!

C1 (ii) a) A global marketplace needs global rules Trade Banking Investment Health and Safety Airline Regulations Infections and Viruses b) Easier to achieve common goals E.g. Competition policy in Europe

C1 (ii) c) Co-ordination issues E.g. Tax (game theory idea) d) Externalities Environmental policy( has common goals but incentive issues) Nuclear power Market solution? e) Free rider problem Definition

C1 (ii) Some Other International Issue Areas 1) Global foreign policy issues Stateless Wars Global sanctions E.g. Russia/Ukraine, Iran, Syria 2) Regulations for common areas e.g. international waters and space 3) Migration policies

C1 (ii) 4) Global inequality and poverty High global inequality can be bad for its own sake (Rawls) Can lead to global instability Can lead to migration issues

C1 (ii) Finally: Although there is no international government to regulate and enforce rules, there are some supra-national bodies EU WTO UN How do they enforce rules? Globally there is a reliance on norms and peer pressure. However, some bodies (EU, WTO) can enforce rules through punishments/fines etc.

C1 (iii) C1 (iii) What further issues arise in relation to EU integration?

C1 (iii) Positive Story Only advanced, international intergovernmental structure in place Huge progress on economic front Goods, services, investment and people (a large social aspect and more controversial) Genuine world player with the second largest market in the world Efficiency gains Greater ability to deal with some issues

C1 (iii) Negative Story This is where you will find difficulties with further integration The free movement of people in the common market Democratic deficit issues Preferences may/are different in some areas - - e.g. taxation policy. So, negotiation/bargaining can be difficult Incomplete integration can cause problems - - banking system was heavily linked yet policy/oversight etc. was not. Migrate crisis, Ukraine Institutional structure has issues - - voting methods/vetoes

C1 (iii) Case study of pros and cons with a potential Britexit - - which has potentially serious consequences for Ireland, as well as Britain and other EU states

Class Test The Class Test takes place on November 17 th at 15.15 in the Burke Theatre. Test is worth 25% of your overall grade. There will be 5 questions on the test (from the 9 we have covered in tutorials -- 3 in A2; 3 in B1; 3 in C1). Please make sure to answer all 5! You will have approximately 15 minutes per question Prepare answers in advance and practice writing them out Remember your answers shouldn t be information driven. You should be using information to tell a story/make an argument (you don t have to give every argument, just the one (s) you think are most relevant/best) And please, please structure your answers for clarity!