EC140 Chapter Notes - Chapter 1: Market Economy, Invisible Hand, Money Supply
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EC140 Full Course Notes
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Facts: international trade has increased as a proportion of world gdp from about 10% to nearly. Smith argued that when each person makes the best possible economic choice in a market price system, that choice leads as if by "an invisible hand" to the best outcome for society as a whole. Governments can sometimes improve market outcomes: sometimes government actions are needed to overcome market failure, market failure, a situation in which the market on its own fails to allocate resources efficiently, causes of market failure. The quantity of goods and services available is too small. Externality: an externality is the impact of one person"s actions on the well-being of a bystander. Example: pollution: if a chemical factory does not bear the entire cost of the smoke it emits, it will likely emit too much smoke. In some countries, economic growth has been even more rapid.
