A role for government (2): Dealing with externalities

This previous post tells the story of how government can deal with externalities (which, by the way, is a very important concept for you to know, so click the link!) through regulations. Now, economists usually prefer a different means to deal with externalities, i.e., taxation. Specifically, it is usually called a “Pigovian tax“. In fact, [...]

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Microeconomics implies people are stupid?

…or so he says based on Greg Mankiw‘s 10 Principles of Economics. Enjoy!

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I, Pencil

A must-read. A classic, most beautiful story by Leonard Read about how the market works, that begins: I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write. Writing is both my vocation and my avocation; that’s all I do. You may wonder why I [...]

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In the news: Price floors in France

Rent control, described in this post, is an example of price ceiling. Now this story in LA Times describes one version of price floors on department store goods in Europe: In America, merchants hold sales whenever they like. In parts of Europe, it’s the government that makes the rules.Twice a year, in January and June [...]

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A role of government (1): Providing public goods

An interesting thing about Chapter 4, which I plan to cover next week, is on the role of government. So far, I have argued that in general, the market system is a good thing because it is efficient. However, there are circumstances in which markets do not work very well in allocating resources. We call [...]

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In the news: Local business, “municipal” cost

In today’s LA Times, an example of negative externalities which is an important subject of Chapter 4. On the one hand, the private benefits of rush-hour parking: Customers hoping to savor challah at their Shabbat dinners know that the line often trails out the door of Delice Bakery on West Pico Boulevard. The purveyor of [...]

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Why markets work (2)

A beautiful, classic elaboration by F. Hayek of why the market system works more efficiently than command economies: The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but [...]

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Why markets work (1)

John Kay contrasts between abilities of command vs. market economy to accommodate change: In an uncertain, changing world, most decisions are wrong, and success comes not from the inspired visions of exceptional leaders, or prescience achieved through sophisticated analysis, but through small-scale experimentation that rapidly imitates success and acknowledges failure. This disciplined pluralism is the [...]

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