ECON 101 2Midtermreview

Inefficiency of rent ceilings a rent ceiling set below

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Unformatted text preview: overproduction. High Transactions Costs Transactions costs are the opportunity cost of making trades in a market. To use the market price as the allocator of scarce resources, it must be worth bearing the opportunity cost of establishing a market. Some markets are just too costly to operate. When transactions costs are high, the market might underproduce. Alternatives to the Market When a market is inefficient, can one of the non- market methods of allocation do a better job? Often, majority rule might be used. But majority rule has its own shortcomings. A group that pursues the self- interest of its members can become the majority. Also, with majority rule, votes must be translated into actions by bureaucrats who have their own agendas. Utilitarianism is the principle that states that we should strive to achiev...
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This note was uploaded on 03/29/2014 for the course ECON 101 taught by Professor Vanderwaal during the Spring '08 term at Waterloo.

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