ECO 1305 Lecture 3: Change of Economies
Document Summary
You are expected to apply the general framework we covered in the sixth week. How economies move in the triangle market-state-community towards a reflexive equilibrium. Market co-ordinates the production and consumption through voluntary transactions- at perfect markets. State is an organization for monopolizing legitimate coercive power. Community is a group of people tied by mutual trust based on intense personal interactions. Basic problem is to find an optimal combination of market+state+community. What are optimal changes in time and space- reflective equilibrium. In optimal combination, two elements always correct the failures of the third one. Helps to supply local public goods- community effective in preventing free-riders. Major time lag between increases in production capacity and changes in superstructure. Core institution is the property right assignment of a key production factor at each stage of economic development. Institutions are not as inflexible to make a violent revolution inevitable.
