Class Eighteen

Market tends to make positive outcome.

MARETS ARE OFTEN “WRONG”:

i.                     “Lack of Markets” (market cannot be formed):a) externalities, b) market power, c) information balance(asymmetric information and moral hazard)

ii.                   Institutions matter, eg. Insurance

One goal of economic policy: “efficiency”: producing what people want at the lowest feasible cost.

*“Institutions”: any arrangement people make, why it’s important:

i.                     You can't have markets unless all the institution work well 

ii.                   Institution is rivalries. We need to build up "trust", quality, and rules before there is market.

2. “Rule of law”:

i.                     General law (you can’t sit on the seat when there’s a bag on it.): Laws apply equally to everyone.

ii.                   Laws should not be arbitrary.
What’s the difference between the rich and the poor regions in the world? Wrong institutions. *Even though you get the institutions right, you can’t get the growth remarkably fast. 

*Inflation: what all prices go up

Money only makes it easier to exchange. When you get too much money and the amount of the good is the same, prices go up.