Co-evolution of firms and consumers and the implications for market ...
178.307 Markets, Firms and Consumers
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178.307 Markets, Firms and Consumers Lecture 1- Introduction to the Market Economy
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178.307 Markets, Firms and Consumers. Lecture 1- Introduction to the Market Economy. Administration Workshops Test (Wenesday 5 April) Assignment (next week) Expectations Participation. One can succeed at almost anything for which he has enthusiasm Charles Schwab. Lecture Overview. - PowerPoint PPT Presentation
Transcript of 178.307 Markets, Firms and Consumers
178.307 Markets, Firms and Consumers
Lecture 1- Introduction to the Market Economy
Lecture Overview
Administration– Workshops– Test (Wenesday 5 April)– Assignment (next week)
Expectations– Participation
One can succeed at almost anything for which he has enthusiasm
Charles Schwab
Course Overview
The
Market
Economy
The Firm
Input Markets
Internal Processes
Exogenous
Organisations
Key Points
Course in Microeconomics
Narrower Focus Economic TheoryMathematicalEconomics
EmphasiseFirms
Applications
Why Mathematics?
Economics is a discipline that depends on logical reasoning.
Experimentation provides ‘less decisive’ results.
The Market Economy
“Two women and a goose make a market”
Markets are widely used to organise production, allocate consumption goods.
Markets are not the only form of organsiation.
Other organisations– Internal allocations within
a firm– Production and
consumption decisions within a family
– Soviet-style planned economy
Markets and Efficiency
Mid-20th C debates did not always see markets as more efficient– E.g. Nationalisations in the post-war period– Viability of Socialist Planning
Empirical evidence is that markets are ‘efficient’:
Medicare Processing Performance and Ownership
0
5
10
15
20
25
30
35
40
45
Cost per $processed
AverageProcessing
Time
% Errors per$1000
Processed
Profit-seeking firms
Nonprofit firms
Efficiency of Markets
Private Property– Ius possendi– Ius utendi– Ius abutendi → right of
disposition Rights have to be
enforceable and enforced Poland
– Market Socialism
Markets as a Spontaneous Order
Hayekean Argument Markets are not
‘designed’ (just like language)
They persist in hostile circumstances
– Black Markets in USSR
They overcome ‘preference’ for family/tribe.
This increases scope for “exchange”
Markets and Dispersed Knowledge
Hayekean Argument Knowledge is dispersed in
an economy– E.g. franchising and
professional partnerships Knowledge is not the same
as information Knowledge may not be
‘codifiable’.
Markets draw upon such knowledge
– Smith’s analogy of the ‘Invisible Hand’.
Soviet-style economies could not use this knowledge.
Non-codified Knowledge
Markets as a Discovery Process
Rivalrous market competition is the process that generates knowledge about production processes
Freely adjusting market prices are important
They correct errors in perception
Prices capture more than ‘just’ relative scarcities
References
Hayek and Socialismhttp://links.jstor.org/sici?sici=0022-0515%28199712%2935%3A4%3C1856%3AHAS%3E2.0.CO%3B2-Q
What does it take for a Market to function- Davidson and Weersinkhttp://links.jstor.org/sici?sici=1058-7195%28199823%2F24%2920%3A2%3C558%3AWDITFA%3E2.0.CO%3B2-F
