Today we talked about the market.
We said that market transactions caused positive sum outcomes. But markets are often wrong and sometimes trade doesn't happen.
This happens when there is a lack of markets or a problem in the institutions.
When we have a lack of markets, there are usually externalities (like social norms preventing transactions), market powers (monopolies), or information problems. Rizzo proved this by politely sitting on a student and asking him to pay him to get up. Both parties would benefit from the transaction, but there was no trade - social norms prevented this.
We have problems in institutions usually with the Rule of Law. This is when legislation applies equally to everyone, the law is not arbitrary/arbitrarily enforced, and it is a general law (see titanium czar lecture). Rizzo talked about getting pulled over for speeding and when speeding is acceptable. The law can't be arbitrarily enforced.
We then talked about efficiency as producing what people want and at the lowest cost. We don't want to wast resources.
We ended the class with inflation. This is when there is a general rise in all prices. Basically there's too much money. There is the same amount of goods, but there's just more money so prices increase. There is always that famous complaining Grandpa story - "when I was a kid, candy cost 2¢." Well you know what Grandpa? You also made less in wages.
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