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Lecture 10

ECN 340 Lecture Notes - Lecture 10: M&T Bank, Root Mean Square, Economic Planning

Course Code
ECN 340
Thomas Barbiero

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Nov 28th
Economics of Failure
Online Chapter 13 of M&T
Failure arises because…
basic human condition of scarcity — relation to wants, you would like a degree, you attempt
to get it, but it doesn't work out
human search for greater rewards — we do things, but sometimes they don't work out,
always searching to improve
lack of information, particularly in the market system — what are you doing with your life?
Failure of Scarcity
choices have to be made, some of which will not work out
some producers will not be able to get the necessary resources they need (e.x, land, capital
and labour)
those in production will fail to retain resources they do have (employees quit)
choices and necessity of allocation make failure unavoidable
pervasiveness of scarcity ensure failures
failures cause:::::::
a release of resources that can be re-employed (possibly as lower price) in
more successful undertakings. e.x blackberry employees may have gone to
a decrease of abundant G&S produced that can be sold at higher prices (when
supply falls)
as some businesses fail, others will start to grow
Searching for Greater Rewards:
efficient firms should fold if more efficient firm exists
no such thing as good absolute performance
relative performance matters
beautiful female can fail to attract a male if an even more beautiful female competes
constant pressure, no absolutes
Information Failures:
info is costly both in the product and resource market
firms cant tell if product will sell. Resource owners can’t always guess correctly guess to what
is in demand
Example: a student goes into economics, but when they come out with a degree, jobs in that
sector are no longer in demand — thus they have failed.
public policy may try to redistribute successes and failures through the tax system (some
people fail to work, so taxes from successful people go to welfare for those
centralizing decision making process will not solve the information problem (communist
country, Cuban economy is poor even if you centralize information, its impossible to get rid of
information problem)
Central planning impose superhuman demand on limited capacity of planners to handle
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