Crit1 - ISS 225: Crit1 April 2005, p.1 What Markets Do Not...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ISS 225: Crit1 April 2005, p.1 What Markets Do Not Do Well -- And Cannot Do Well 1 Review of the properties of Perfectly Competitive Markets: 2 Particular kinds of legal conditions 3 Property rights, and other kinds of rights. 4 Independent courts to enforce and protect these rights. 5 The existence of money as an exchange medium. 6 Large numbers of producers and large numbers of consumers. 7 Particular kinds of goods and services. 8 Private goods, not public goods. 9 Production and consumption have particular kinds of characteristics: 10 No externalities (especially no negative externalities). 11 Actors have perfect information about each other’s knowledge and preferences. 12 The existence of entrepreneurs. 13 Critique of Markets 14 This lecture is about things that markets do not do well, and so government may have a positive role to play. 15 But: This does not necessarily mean that democracy is undermining capitalism! 16 Indeed, it may be that government (and thus democracy?) is helping capitalism to work better. 17 Instead, it may be that “undermining” occurs when capitalism is working well but there are still some negative consequences that people do not like. 18 Critique of Markets and Arguments for Government Intervention 19 Particular kinds of legal conditions: 20 Absence of these conditions is one that almost has to be solved by government: 21 Questions of who has what kinds of “rights” over what kinds of property or services? 22 The existence of money as an exchange medium: 23 Media of exchange can be generated by private markets: 24 Many different kinds have been invented by the private market: (25) Various kinds of bonds, stocks, promissory notes (promises of payments), annuities, insurance policies
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ISS 225: Crit1 April 2005, p.2 26 Essentially all governments in the world, however, find it useful or necessary to also create some general media of exchange. (27) This is not without problems, however: (28) Governments can devalue their own currencies, through simply printing more paper money. 29 Large numbers of producers and large numbers of consumers: 30 The classical problem here is one of monopoly : 31 There may be “natural monopolies”: (32) Cases of production with increasing returns to scale : (33) That is, the bigger the production plant, the more efficient it is. )This possibility tends to be discounted. )Optimal size of production plants generally does not seem to be so large that one plant can produce enough for the whole market. (34) Costs of non-monopolistic competition: (35) Telephone poles and wires being strung everywhere, electircal power poles and cables being strung everywhere. (36) Virtually all state and local governments adopted “regulated monopolies” as
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/09/2008 for the course ISS 225 taught by Professor Williams during the Spring '07 term at Michigan State University.

Page1 / 6

Crit1 - ISS 225: Crit1 April 2005, p.1 What Markets Do Not...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online