Tuesday, May 26, 2009

Does the market always work?

The more I teach economics and read it, the more I am convinced that market works. There is nothing like pricing a good. Today's class showed me that too. My students seem to be concerned about saying the wrong things rather than saying what they think and letting themselves be judged. The moment you associate a grade with a comment, they are scared of saying anything. That is why I think the market works....because the more you value good participation, the more the involvement and greater the learning. So people are rational and they respond to economic incentives. That makes it easy for us to design rewards and punishments for every act.
The market also works in distributing information evenly. The discerning student who sought information sounded much more logical and constructive. What I mean when I say 'evenly' is that it seeks its best price and removes the possibility of irrelevant information flowing in. So in essence market means the agent's ability to command a price and thereby direct the quality and flow of the decision. Doesn't the market make it difficult for the non-payer to participate in decision making? The non-payer is not a stakeholder in the economic activity. He need not pay monetarily, but his involvement in the non-monetary acts determines his stake and thereby level of involvement.
Therefore, to conclude, I have observed that market principles work best when left to themselves. At the cost of sounding so Adam Smith-like, I would mention that even a student beginning his journey into economics knows how to make trade offs and can see opportunity costs of decisions and is articulate about making the optimal choice. Isn't that sufficient testimony that markets work everywhere?