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Economics

Economics. Amit Golder. Outline. What is a Market? How does economics control people? When can the government intervene in the market? Some other concepts. The Market:. A place where stuff is traded The natural distribution of things according to supply and demand The invisible hand.

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Economics

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  1. Economics Amit Golder

  2. Outline • What is a Market? • How does economics control people? • When can the government intervene in the market? • Some other concepts

  3. The Market: A place where stuff is traded The natural distribution of things according to supply and demand The invisible hand

  4. Why is the market good? If it works - things get moved with maximum efficiency and maximum fairness. People who want stuff, get it, at a rate that they are willing to pay Utility is maximised and scarce resources are allocated in the best way.

  5. The Clash: In general the principled clash in economics is Adam Smith: free market rules, government out VS John Maynard Keynes: go government go!

  6. Controlling people: “Profit Motive” - the desire to make a profit, duh! Corporations can be described as only having a profit motive. “Scarcity”- if something is valued and scarce it will be expensive and those that control it will be powerful.

  7. When can the government intervene in the market? When the market fails! Ie: when the efficiency, fairness and utility that the market is meant to provide is not happening!

  8. Market Failures “Monopoly”: when 1 company or person is responsible for all supply, they aren’t bound by the pressures of competition and so quality and price are affected. Eg Microsoft, Qantas

  9. Market Failures “Information Asymmetry”: when one party to a transaction knows much more about the real value of the transaction than the other party. Why bad? Not just unfair, but can scare people from participating in the market at all. Eg. Insurance companies

  10. Market Failures “Externalities”: sometimes there are costs associated with the supply of a good or service that are not considered by the market. So the price of the good does not fairly reflect its cost/value. Eg. Environmental costs, emotions.

  11. Market Failures “public goods” - if something has value to people, but no cost attached to its use and nobody regulating its use, then it will be overused. This situation is known as the “tragedy of the commons” Eg. Clean air

  12. Market Failures “Irrationality”: not strictly a market failure but important to note that the market assumes that all actors are rational, which is plainly untrue.

  13. So sometimes the market fails, and that justifies the government stepping in to disrupt the ‘natural’ outcomes that the market would have reached. BUT sometimes government intervention causes harm too

  14. Gummyment Inefficiency: the government is motivated and controlled by different things to purely economic actors, and so often leads to less efficient outcomes Lobbying: when the government gets involved in something the nature and extent of its involvement is a political decision, and therefore is subject to pressures.

  15. Concepts “Moral Hazard”: the doctrine of moral hazard holds that if an economic actor is insulated from risk then they will act differently to how they would if they were fully exposed to that risk. Eg. Insurance, Government Bailout

  16. Concepts “Economies of Scale”: the more a process of production is repeated, the cheaper it will be. Making 10 cds costs a certain amount, making 100 cds costs more overall, but the price per CD is cheaper. Eg. Why TV from the US is cheaper than in Aus

  17. Concepts “Comparative Advantage”: some people or places can produce goods at lower costs than others Eg. Electronics from asia, coffee beans from africa, murderers from South Australia

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