Richard Damra Thursday, January 10, 2013
Gains from Trade
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. Government may
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. Eg donor organs
The Economist’s Roles
When economists are trying to explain the world, they are scientists
When economists are trying to change the world, they are policy advisors.
Positive vs Normative Statements
Positive statements: describe the world the way it i