ECO101H1 Chapter Notes - Chapter 6: Allocative Efficiency, Planned Economy, Market Failure
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ECO101H1 Full Course Notes
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The operative choice is not between an unhampered free-market economy and a fully centralized command economy. It is rather the choice of which mix of markets and government intervention best suit people"s hopes and needs. A related government activity is to provide security of property. Institution building: official assistance given to developing countries in the form of political assistance rather than economic assistance. The case for free markets has been presented in two different approaches: formal defence . Based on the concept of allocative efficiency. Market failure: describes a situation in which the free market, in the absences of government intervention, fails to achieve allocative efficiency: then provides opportunities for government interventions designed to improve allocative efficiency. An allocatively efficient outcome (positive statement) may not be the most desirable in a normative sense (someone may judge the distribution of income to be undesirable). Two situations in which a free market fails to achieve complete allocative efficiency are: market power.
