Sunday, November 01, 2009

AP Economics: 2 November 2009


Current Events:

Responding to a Freedom of Information Act request, Obama has released a partial list of visitors: George Soros
is on the list. Soros advocates the entry of China into the New World Order.

Today's lesson plan and HW is available on the blog:


The Shanawiki page ( has updated class information.

LibraryThing has bibliographic resources.

I moved the "Blog Archive" to the top right on the blog page so it should be easier to find the daily lesson, HW, and other class material.

Chapter 4 Market Efficiency, Market Failure, and Government Intervention

Take reliable notes on the PowerPoint presentation for Ch. 4.

Chapter Outline

Chapter 4 Market Efficiency, Market Failure, and Government Intervention

Markets are efficient mechanisms for allocating resources. However, in the real world, markets can “fail” as a result of departures from the idealized competitive market structure. This chapter assesses the efficiency of markets in terms of maximizing consumer and producer surplus, and explains the circumstances under which market failures can occur. Government intervention in markets in the forms of price floors, price ceilings, and taxes is also examined.

Efficient Market Requirements
Accurate Information Is Widely Available
Property Rights Are Protected
Contract Obligations Are Enforced
There Are No External Costs or Benefits
Competitive Markets Prevail

The Discipline of Markets
Consumer and Producer Surplus: A Tool for Measuring Economics Efficiency
Checkpoint: Markets and Efficiency

Market Failures
Accurate Information Is Not Widely Available: Asymmetric Information
Adverse Selection
Moral Hazard
Information Markets: The Wisdom of Crowds

Problems with Property Rights
Public Goods
Common Property Resources
Contract Enforcement Is Problematical
There Are Significant External Costs or Benefits: Externalities
Competitive Markets Do Not Prevail: Monopoly Power
Checkpoint: Market Failures

Government-Controlled Prices
Price Ceilings
Price Floors
Taxes and Deadweight Loss
Checkpoint: Government-Controlled Prices

Who Is Watching Your Money? Bank Regulation and Information Problems

Chapter Summary
Markets and Sufficiency
Market Failures
Government-Controlled Prices


1. Read: "Who Is Watching Your Money? Bank Regulation and Information Problems," pp. 103-105; and, answer the Follow-Up Questions:

How does a car insurance provider use pricing to deal with moral hazard? Can that same mechanism be used for deposit insurance?