Economic Studies 220

1
Economic Studies 220

• Free market capitalism
• V
• Marxism / Socialism

2
Pure Market capitalism

• Where?
• G intervention subsidies, trade protection,
  infrastructure.
• Macro economic fluctuations 1970/1890 unequal
  distribution of Y, concentration of industrial
  monopolies
• Current 3 economies close to laissez faire

3
Dynamic efficiency

• Schumpeter creative destruction (The Theory of
  Economic Development 1911)
• Static efficiency
• Dynamic efficiency prerequisite institutional
  framework facilitating transactions and contracts
  at minimal cost.

4
Efficiency of Market capitalism

• Complete
• Competitive
• Full information
• General equilibrium
• PPF / PPC Fig 2 - 1
• Adam Smith Invisible hand
• Fig 2 - 2

5
Limitations

• Monopoly power Fig 2 3
• Natural monopoly
• Technological monopoly
• Monopolistic competition
• Oligopoly
• Contestable market

6
Collective goods

• Collective consumption goods
• Public goods non-excludability, non-depletion
• Free rider problem

7
Imperfect information

• Ackerlof second hand goods
• Principal agent problem

8
Labour Unions

• Business unionism guilds
• Labour activism
• Corporatism labour-management co-operation, G
  encouragement for macro economic stability

9
Externalities

• Tax
• Control quantitative restrictions
• Coase Theorem

10
Macro economic Instability

• Unemployment capital I
• Keynes response
• Classical school response
• Chicago School - Milton Friedman
• Tools of macro economic policy fiscal and
  monetary

11
Marxism Socialism

• Utopian socialism Saint Simon.
• Society planned from the top social engineering

12
Marxism

• Holism class stratification of society.
  Technology of society (forces of production)
  determine mode of production substructure
  (base). Substructure determines superstructure
  (religion, politics, culture etc.)
• Hegelian dialectic thesis v anti-thesis
• Historical materialism -

13
Labour Theory of value

• Value of commodity C
• C c v s ( c indirect labour cost v
  direct labour cost s surplus value)
• c outlay of services of plant , equipment,
  inventories, materials these embody past
  labour. We say c non-labour costs
• v wage costs
• Capitalism is driven by profit rate of profit
  declines exploitation increases.