ECON 1B03 Chapter Notes - Chapter 1: Market Failure, Market Power, Externality
1 Mar 2013
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ECON 1B03 Full Course Notes
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In a market economy, people engage in trade with each other. Not every family or nation can produce everything it needs effificently. We specialize in tasks we do best and trade with others for the things we need that they can provide. (division of labour) In this way, we have gains from trade. Efficiency: we make the best use of our resources (economic decisions) Equity: fair distribution of resources (political decisions) Market failure: occurs when the market fails to allocate resources efficiently. Externality: impact on someone random. (ex: guy buying tree and their neighbor gets shade). Impact of one person or firm"s actions on the well-being of a bystander. Market power: ability of a single firm to unduly influence market prices eg. monopoly. Some goods just aren"t suited for the market. When economists are trying to explain the world, they are scientists. When economists are trying to change the world, they are policy advisors.
