Specialization and Gains from Trade.doc

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Political Science
POL S 270
Anthony Gill

Specialization and Gains from Trade Lecture 3 I. Problems with markets: a. There are some things that the public wants but the market doesn’t clear because the supply doesn’t meet the demand (i.e. public goods, CPRs (common pool resources), externalities). b. Competition isn’t always free and fair (i.e. Bernie Maydoff) II. FUNCTIONS OF MONEY a. Means of exchange i. Lowers transaction cost of trade (saves time) and bartering is expensive b. Store of value i. Allows for long-term investment and resources to accumulate; doesn’t depreciate c. Unit of account i. Allows for comparison of value, but not all value III. Rules (coercion) and Institutions are needed to: a. Provide public goods and minimize externalizes b. Keep markets fair and competitive c. Basic efficiency d. …Require: i. Creation (legislature, etc.) ii. Monitoring (judicial system, ensure rule following) iii.
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