19.12.16

A CALL FOR COMMENTS.

John Quiggin is soliciting comments on his Economics in Two Lessons.

For background, the lessons:
Lesson 1: Market prices reflect and determine opportunity costs faced by consumers and producers.

Lesson 2: Market prices don’t reflect all the opportunity costs we face as a society.
Yhat might be the Welfare Economics Paradigm at work, or that might be the difficulty of modelling a world in which information is not a scarce resource and using those models to develop testable implications about a reality in which information is a scarce resource.

Today's challenge: the fundamentals of industrial organization.
A crucial requirement of Lesson 1 is that prices are determined in competitive markets. But free markets are not necessarily competitive. If the technology of production involves economies of scale, as is the case for most kinds of manufacturing and many services, large firms will have lower average costs than small ones.

Over time, therefore, the number of firms will shrink through exits or mergers, until economies of scale are exhausted. In the limiting, but not unrealistic, case of natural monopoly, unrestrained competition will lead to the emergence of a single dominant firm.
Then you have the additional challenge of new methods of production displacing old ones ...

By all means go there, read the material, participate in the bull session.

No comments: