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FACTOR MARKET, EFFICIENCY: A factor market achieves efficiency in the allocation of resources by equating marginal revenue product to factor price. Perfect competition, as the efficiency benchmark, is the only market structure to satisfy this criterion and achieve factor market efficiency. Monopsony, oligopsony, and monopsonistic competition are inefficient because they equate marginal revenue product to marginal factor cost, both of which are greater than factor price.
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Lesson 1: Economic Basics | Unit 3: The Economy
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Page: 8 of 18
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Topic:
A Mixed Economy: Markets and Government
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Markets do an effective (and efficient) job of answering the three questions of allocation--most of the time.- Markets are the VOLUNTARY exchange of goods and services.
- A pure market economy is an economy that uses nothing but markets to allocate resources.
- A pure market economy is a useful theoretical benchmark.
Market responses to the allocation questions:- What? Resources are used to produce goods with the highest prices.
- How? Goods are produced using the combination of resource with the lowest prices.
- For Whom? People with more income buy more goods.
Government also helps answer the three questions of allocation.- Government allocation is INVOLUNTARY. It sets the laws and rules.
- A pure command economy is an economy that uses nothing but government to allocate resources.
- A pure command economy is another useful theoretical benchmark.
Government responses to the allocation questions:- What? When government spends taxes, it dictates what goods will be produced.
- How? Government has laws and rules that specify how resources will be used to produce goods.
- For Whom? Government collects taxes from some people and distributes them among other people.
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POLITICAL ENTREPRENEURS Election seeking politicians who undertake risks inherent in the allocation of resources made through government actions. Like business entrepreneurs, political entrepreneurs take risks and organize production. They organize production with government laws, regulations, and policies. They run the risk of failed policies and losing elections. Their utility-maximizing actions are also a prime source of government failure. Falling victim to the principal-agent problem, pursuit of their own satisfaction (winning elections) often conflicts with what is best for the rest of society.
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PURPLE SMARPHIN
[What's This?]
Today, you are likely to spend a great deal of time going from convenience store to convenience store looking to buy either a birthday gift for your grandmother or a T-shirt commemorating yesterday. Be on the lookout for telephone calls from former employers.
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A half gallon milk jug holds about $50 in pennies.
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"You have to find something that you love enough to be able to take risks, jump over the hurdles and break through the brick walls that are always going to be placed in front of you. If you don't have that kind of feeling for what it is you're doing, you'll stop at the first giant hurdle. " -- George Lucas
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