ECON 208 Chapter Notes -Rational Ignorance, Public Health Insurance Option, Adverse Selection

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Lee Ohanian

Document Summary

The operative choice is between which mix of markets and government intervention best suits people"s hopes and needs. When government"s monopoly of violence is secure and functions with restrictions against its arbitrary use, citizens can safely carry on their ordinary economic and social activities. The informal case is based on three central arguments: free markets coordinate actions automatically, the pursuit of profits leads to innovation and growth, free markets decentralize economic power. So the price mechanism in free markets coordinates the responses of the individual economic agents (the firm and the consumer) seeking only their self-interest: this coordinates markets: Without any individual consumer or producer needing to understand how the system works. Profit motive creates incentives for research and development, creating new and better products and production methods (often by trial and error) The biggest failure of centrally-planned economies was to hinder research and development by: not letting the market make decisions, not providing the incentives.