ECON 219 Lecture Notes - Lecture 18: Market Failure, Mania, Comparative Advantage
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ECON 219 Full Course Notes
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Effects of critical mass on many types of economic behavior. Technology lock in: markets select inefficient technologies as an almost inescapable standard. Bad because successful companies may be using inefficient resources. Main example of a technology is the qwert keyboard, when found that the dyorak keyboard may be more efficient (however, later proven to be false) Sometimes choose bad things, and are unable to switch to the better options. Costly to enforce, and sometimes infeasible to write one up. Vertical integration is seen as a market solution. Fisher body refused to locate its plants next to gm. Later proved that this never happened, and both companies were amicable with each other. Assumed that the principal has less information than the agent. Either the agent"s actions or his characteristics are unobservable to the principal. Effort is costly to the agent, so if his wage is fixed he will shirk.
