nt, output and prices. Today's federal government seeks to stablize the economy at a high and possibly growing level of output and employment.
When considering the criteria for policy evaluation, the authors suggest that understanding equity, economic efficiency, paternalism, individual freedom and tradeoffs can provide useful tools. The Brownings do not suggest that any of these are in and of themselves desirable, but they are often used in economic analysis and in making the value judgments that lead to evaluating policy (8).
In theory, a competitive price system tends to produce an efficient allocation of resources. In practice however, two additional considerations, public goods and externalities, may lead to market failure.
Public good is not necessarily a good or service provided by the government. A public good is characterized by nonrival consumption and nonexclusion. Nonrival consumption means that consumption by one person does not decrease the total amount of the good that is available for consumption. National defense is one example of a nonrival consumption. The number of people protected by a antimissile system does not decrease the number of people who can be protected by it. If a single person moves out of the affected area, the level of protection to others remains unchanged. Flood control projects are similarly nonrival in consumption. Most goods and services in an economic system, however, are rival in consumption; that is, the competition among consumers influences how much of the good or service is available for consumption.
Nonexclusion refers to whether a good can be limited to only certain individuals. A nonexclusive good is available to all regardless of whether or not the individual pays for the good or service. Again, national defense provides an example of a nonexclusive good. An antimissile system does not discriminate, cannot discriminate, among the individuals it protects. Televis...