PAM_2000_Spring_2009_Lecture_8

PAM_2000_Spring_2009_Lecture_8 - PAM2000Lecture8 Agenda...

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    PAM 2000 Lecture 8 Agenda Role of Institutions in Markets: Property Rights and Contracting Deriving a demand curve Income and substitute effects of a price change Normal good Inferior good Giffen Good Changes in Income: Engel curves
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    Role of Institutions in Markets Market participants (suppliers and demanders) do not operate in a vacuum They operate within an institutional setting : A set of legal arrangements (property rights - both tangibles and intangibles (copyright, patents, etc), contracting rights (exchange or deal that must be enforced), tort law (right to seek duress when injured by someone), criminal law, regulations such as antitrust) and social norms of behavior (i.e. “its bad to steal”)) Social norms are very useful when studying behavior of people Institutions and market operation interact
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    Role of Institutions in Markets Some institutions are conducive to market operation (and thus economic growth): Well-defined and enforced property rights Enforcement of contracts Stable set of legal rules Social norms supporting property and contracts Not only facilitate markets, but also encourage investment (physical, human capital, etc.)
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    Role of Institutions in Markets  (con’t) New learning on economic development: Why are some countries poor while others are wealthy? Old View (probably discarded): natural resources, some countries are natural resource rich, and others are naturally resource poor; however, Japan disproves this as does Singapore (Island Nation) because they have very little natural resources but are relatively rich and on the other
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