Outline for first assignment

Outline for first assignment - Dan Guerra Section Friday...

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Dan Guerra 2/19/11 Section: Friday The Argument of Government Intervention in Markets In today’s global economy, there are varying attitudes towards price-fixing and government intervention in markets; of these there are two distinct positions. There are those including Milton and Rose Friedman, who take a very minimalist attitude. Markets, they assert, are too large and complex for any individual source of power to properly direct. Therefore, government regulation will throw off the natural course of a market driven by supply and demand. In contrast, there are those including David Harvey, who believes in the government having input in the ongoing of the market, citing that “ the ‘hidden hand’ of the market has never been sufficient in itself to guarantee stable growth for capitalism” (p. 122, Harvey, 1989). In terms of the price and distribution of a product, the Friedmans believe it should be the result of its supply and demand, where as Harvey’s market controls prices and distribution based on the ability of the policy makers to forecast product demand. Ultimately, from an economic standpoint, the free-market position of Friedman creates the most efficient environment for the production and distribution of goods as it reduces the potential for human error from the operation of the market. When a market is free, as Friedman proposes, limited resources are allocated in a predictable manner; driven by supply and demand. If prices are allowed to fluctuate, rising prices, and the related increased profits, create greater incentive to produce any given product. As the supply of this product increases, the result is a decline in prices; the
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market becomes self-leveling. When a degree of "collective action" is imposed, as Harvey suggests, the market becomes inefficient. “The price system [of a free-market] works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning” (p.14, Friedman, 1978). For instance, if government imposes price controls, then supply is limited and demand is unmet. One example would be if the government says that milk at supermarkets can only be sold for $3 a gallon. The result is the cost of producing milk increases as its demand increase. However, since the farmers’ profits are being curbed by the state, it becomes less attractive to produce the milk. By regulating the price, the government has given less incentive to produce milk and the supply then dwindles. In the market proposed by Harvey, the success of the collective action ultimately
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Outline for first assignment - Dan Guerra Section Friday...

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