Understanding Markets: The Role of Property Rights and Prices as Economic Signals - Prof. , Study notes of Agricultural engineering

Download Understanding Markets: The Role of Property Rights and Prices as Economic Signals - Prof. and more Study notes Agricultural engineering in PDF only on Docsity! 11/3/2008 1 Summing up the basics: Why do markets work so well? Why markets can work well 1. Property Rights 2. Prices as Economic Signals Property Rights Goods have owners who can do with them as they choose. Buying and selling means exchanging property rights. Requires a good system of laws and enforcement. What if… • Students were prohibited from reselling textbooks. • Gas stations were prohibited from selling gas for more than $4.00/gallon. • The government could expropriate land for development Prices as Economic Signals Economic signals aid good decision making Direct resources toward their best uses Prices + Money + Trade specialization and complexity Prices and Economic Signals Which major in college? What kind of business? What kind of car to buy? Where to live? Where to go on vacation? What kind of food to buy? 11/3/2008 2 A look ahead… Property rights can be hard to define or defend. Examples: Online music trading. Clean air. A look ahead… Sometimes prices aren’t good signals. Examples: Used cars (if it’s a “lemon”). AIG stock a year ago. Why do economists disagree? 1. Different models (simplifications of reality). 2. Different values. But we really do agree on a lot of things Positive economics Normative economics The Credit Crisis 1. A story about a neat money making scheme in Las Vegas 2. Data home prices 3. Leverage 4. Mortgage Backed Securities (MBS)