Economics in Two Lessons, Chapter 11

Thanks to everyone who commented on the first ten chapters of my book-in-progress, Economics in Two Lessons.

Here’s a draft of Chapter 11: Market failure: Information, uncertainty and financial markets
. Comments, criticism and praise are welcome.

Earlier draft chapters are available. These aren’t final versions, as I am now editing the entire manuscript, but you can read them to see where the book is coming from.

Table of Contents
Introduction.
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty
Chapter 4:Lesson 1: Applications.
Chapter 5: Lesson 1 and economic policy.
Chapter 6: The opportunity cost of destruction
Chapter 7: Property rights, and income distribution
Chapter 8:Unemployment
Chapter 9: Market Failure
Chapter 10: Market failure -Externalities and pollution.

Feel free to make further comments on these chapters if you wish.

6 thoughts on “Economics in Two Lessons, Chapter 11

  1. On my iPhone, before your comment, there is a link that takes me to ‘Me Stockbroker’ that shows your post, but with ads! Weird.
    I was going to make a comment but might put it on my blog for the time being since I have a lot of comments (I’m still only up to chapter 8 though sadly) and this obvs is not working properly at present

  2. Brian Bahnisch runs quite a nice WordPress blog at Climate Plus. His acknowledgement says he got Tigtog (of Hoydens About Town) to help him set it up:
    “Acknowledgement

    Thanks to tigtog at VIVidWeb for customising and setting up this site, which is powered by WordPress and hosted by DreamHost.”

  3. “In open markets, everyone can observe the prevailing prices.” There is an institutional step missing here. Take the bazaar, the standard pre-modern market structure in much of the world. Bazaars are open and policed against fraud, but not transparent. Buyers of rugs do not typically know the history of previous sales. Price discovery is an exhausting battle of wits, haggling. (In Istanbul, this applies in full to the Grand Bazaar. The smaller Egyptian Bazaar nearby is dedicated to spices and other groceries. It has fixed and often posted prices – haggling is inefficient for small quantities of standard products.) Transparency was only added to markets with the emergence of exchanges in the 17th century. Membership of an exchange carries an obligation to post the prices of your transactions on it. Some financial trading still takes place off-exchange, especially if it’s dubiously legal.

    The section on bounded rationality may be missing a paragraph on the hypnotic effect of unmanageable floods of information in modern financial markets. Many participants can’t stand back and look for the nuggets of valuable information lost in the dross. But I speculate.

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