ECON 101 Lecture Notes - Lecture 7: Free Market, Adverse Selection, Externality
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ECON 101 Full Course Notes
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Document Summary
Property, contract, liability, and enforcement: the rules of the game. The outcome of a trade the government establishes rules that determine how the buyer and seller interact. Must be predictable and fair to gain confidence of buyers and sellers rule of law: property rules ownership. Determines what constitutes unlawful theft and the appropriate penalties: contract rules exchange. Determine what constitutes a legally enforceable agreement between buyer and seller. Determine what constitutes fraud or involuntary coercion: liability rules fault/responsibility for losses. Free market buyers and sellers are free to engage in voluntary trades, market rules are developed and enforced by some authority. Communism an economic system with common ownership of the means of production. Capitalism an economic system in which the means of production are owned privately and operated for profit. Property rights the right to determine how a resource is used. Without property rights, people are reluctant to utilize their resources because they will not reap benefits from it.
