I read over my economics text-book earlier today. I saw in the chapter I was reading that they called the state when there are tons of resources in the economy a positive externalize. Apparently when there are lots of resources in the economy it is called a market failure. One of the solutions the text-book author gave when this state of affairs came up (when there are lots of one resource in the economy) is to solve the problem by reallocating the resource to the government. I don’t understand this. It doesn’t make sense to me why they call it a market failure..
Wouldn’t it be a good thing for firms to have resources in the economy? And all a government would be doing would be taking away the wealth. How is this a market failure? Am I as confused as anyone else here? I don’t get this…
Do you have a scanner? If so, could you scan and upload the relevant pages? The way you paraphrase the argument, it makes it kind of confusing (or, maybe the argument is confusing originally, I don’t know). For example, what does the book cal “tons of resources”? Do you mean an oversupply?
Wait, I see. I might have misunderstood it. The text-book was referring to how sometimes market demand fails to take into account how much consumers really want. I was just confused about what it meant by an underallocation of resources. I thought it was talking about a misallocation of resources. (Like if there was too much).
“External benefits mean that the market curv,e which reflects only private benefits, understates total benefits. The demand curve for the product lies farther to the left than it would if the market took all benefits into account. As a result, a smaller amount of the product will be produced, or, alternatively, there will be an underallocation of reosurces to the product-- again a market failure”.
That’s where I got confused. Never mind. It wasn’t talking about oversupply. It was talking about an undersupply.
If this is an exact quote, I’m not sure how the author(s) of the book came to this conclusion. Even if entrepeneurs made decisions based on some model where he demand curve was estimated to be somewhere, which they don’t, why would they overestimate the demand curve? Does the book evolve the point?
I guess that’s what the text-book author is implying.
I don’t think that the author really evolved on the point. I think that the author was just claiming that the market is inefficient, so, he recommended some policies by the government that he claims should be taken to stimulate it.
Subsidize consumers: To correct the underallocation of resources to higher education, the U.S government provides low-interest loans to students so that they can afford more education. Those loans increase the demand for higher education.
Subsidize suppliers: In some case government finds it more convenient and administratively simpler to correct an underallocation by subsidizing suppliers. For example, in higher education, state governments provide substantial proportions of the budget of public colleges and universities. Such subsidies lower the costs of producing higher education and increase the supply. Publicly subsidized immunization programs, hospitals, and medical research are other examples.
Provide goods via government: A third policy option may be appropriate where positive externalities are extremely large: Government may finance, or, in the extreme, own and operate the industry that is involved. Examples are the U.S. Postal Service and Federal air traffic and control systems.
And that’s called the Nirvana Fallacy–comparing some idealized hypothetical situation to reality and claiming that reality is wrong because reality isn’t like the ideal, and incorporates the Infallibist Fallacy by saying that humans don’t know everything, so they’re just wrong.
One does have to wonder that if humans don’t know everything, how can the humans in government know how to allocate the resources if the resource owners don’t?
IOW: “market failure” is just code for government power-grab. Period. It doesn’t exist in any real form in the market, but is always a product of government meddling, which then means MOAR GOVERNMENT.
i have to say, that as a new participant to this forum i have had to expand my vocabulary, learn some new words, and relearn the definitions of some not-so-new words, but, in general i can honestly say that i never see big confusing words used where little easy words would suffice.
that quote is so obfuscating its absurd. that the economic intellectuals try to make economics so complicated should out them for the frauds they are, except most people cannot figure out that they are frauds cause they can never figure out what they are saying.
deciphered, it is claiming that there is some additional demand of which for some reason the market is unaware, until the demand comes calling, at which time there is a shortage of supply, duh
Because the economy is a big static pie and if one has more, someone else inevitably has less.
Although that does leave the question what all those people are doing at work all day, because I don’t believe everybody is just shuffling goods around and doing NOTHING to it.