經濟學原理：第二講2/9/2025Chapter2:TheModernMixedEconomyA.TheMarketMechanismB.Trade,Money,andCapitalC.TheVisibleHandofGovernment2025/2/92A:TheMarketMechanismMarkets:Farmers’marketsOnlinemarketsStocktradingexchangesLabormarketsAmarketisamechanismthroughwhichbuyersandsellersinteracttodeterminepricesandmaketransactions.Naturalorderofmarkets:individualbuyersandsellersmaketheirowndecisions.Marketsdeterminethepriceofgoods(andhowmanygoodschangehandsbetweenbuyersandsellers).Marketoutcomes(prices,tradingquantities)aredeterminedinmarketequilibrium:whensupplymeetsdemand.2025/2/92A:TheMarketMechanismThefunctionofmarkets:CoordinationofproductionandconsumptionCommunicationofmarketinformationtoallmarketparticipants:pricesservingasamainsignal(e.g.,porkprices)Marketssolvethethreeeconomicproblems:What:consumers’moneyvotes----induceprofit-seekingfirmstoproducethegoodsandservicesconsumerswantHow:competitionforcesfirmstoproducegoodsandservicesinthemostefficientways(withminimalcosts)Forwhom:consumptioncomesfromincome,incomecomesfromfactorsmarkets:laborincome,landincome(rent)andcapitalincome(interestsandcapitalgain).2025/2/92A:TheMarketMechanismThe“dualmonarchy”Taste(preferences):whatpeoplewant.Givenhowmuchincomepeoplehave,taste(preferences)andincomedeterminedemand.Technology:howinputscanbetransformedintooutputs.Combinedwithhowmuchresources(inputs)thesocietyhas,technologyandresourcesdeterminesupply(thePPF).Themarketmechanismmatchestastesandtechnology.AnefficientallocationisapointonthePPF(i.e.,productiveefficiency)thatbestsatisfiesthesociety’staste.Whencanthemarketmechanismachievesuchanefficientallocation?2025/2/92A:TheInvisibleHandAdamSmith:themarketisaninvisiblehandThebirthofmoderneconomics:“TheWealthofNations”,1776(theotherbookofhis:“ThetheoryofMoralSentiment).Modernversionoftheinvisiblehand:undercertainconditions,aperfectlycompetitivemarketeconomycanachieveefficientoutcomes,usingpricesascoordinationandcommunicationdevicesthatguidenumerousindividualsandfirmswhomaketheirownproductionandconsumptiondecisions.Thus,thisinvisiblehandofthemarketleadsself-interestedindividualstoachievesociallyoptimalpurposes.“Bypursuinghisowninteresthefrequentlypromotesthatofsocietymoreeffectuallythanwhenhereallyintendstopromoteit.”2025/2/92B:Trade,MoneyandCapitalAnadvancedmarketeconomyinvolvesintensivetrade,specialization,anddivisionoflabor.Trade:domesticorinternationalSpecialization:concentrateonaparticularsetoftasks.Specializationoflabor(divisionoflabor):eachindividualperformasmallsetoftasksinthewholeproductionprocess.Thisallowspeopletogainspecificskillsandbemuchmoreproductive.Thiswillbemuchmoreefficientthandoingtoomanythings.Specializationofland:agricultural,industrial,commercial,residential,forest,recreational,…Specializationofcapital:2025/2/92B:Trade,MoneyandCapitalGainsfromtrade:Comparedwithself-sufficiency,withspecializationpeopleandcountriesneedtoengageinvoluntaryexchange,whicharemutuallybeneficialandsociallymoreefficient.Theimportanceofaunifiednationalmarket:localtradebarriers,U.S.federallaw,China’scaseGlobalization:anincreaseineconomicintegrationamongnations.Reasons:declineintransportationandcommunicationcosts,andtariffsandothertradebarriers.Internationaltradevolumehasbeenincreasingrapidly.Specializationoflaboracrosscountries:e.g.,cars,computers,AppleIphoneSpecializationofcapitalandintegrationoffinancialmarketsWhobenefitsfromglobalization:China’scase2025/2/92B:Trade,MoneyandCapitalCapital:industrializationisaccompaniedbycapitalaccumulationTraditionalagriculturalproductionuseslittlecapital.Industrialization:capital(machinery,transportation,productionplants,…)becomesmoreandmoreimportantastechnologyadvances.Capitalitselfneedstobeproducedfromrawmaterialsandintermediaryinputs:machinery.Humancapital:educationandskillacquisition.Capitalaccumulationneedsinvestments,whichcomesfromsaving,orsacrificeofcurrentconsumption.2025/2/92B:Trade,MoneyandCapitalInordertoencouragepeopletomakeinvestmenttobuildcapital,propertyrightsmustbewellprotected.Propertyrights:rightsofownerstouse,dispose,profitsfromtheirproperties.Propertyrightsarelimited:theuseofcarsinBeijing,thechangeofyourhouses,theamountafactorycanpollute,…Whenpropertyrightsareill-defined,peoplehavelittleincentivetoprotectthemandmakeinvestmentsinbuildingcapital.State-ownedenterprisesCollectivelyowned:forestlandPollutionandenvironmentprotection2025/2/92C:ThevisiblehandofgovernmentInanymodernsociety,governmentplaysimportantroles.Governmentprovidesalegalenvironment:Defineandprotectpropertyrights.Enforcecontractstofacilitatetrade.Regulations.Andgovernmentdoesmuchmore……Thevisiblehand.Whyisgovernmentneededineconomicaffairs?2025/2/92C:ThevisiblehandofgovernmentEfficiencyreasons:themarketmechanismisnotperfect(marketfailures),sothevisiblehandofgovernmentcanpotentiallyhelpimproveefficiency.Imperfectcompetition(monopoly,naturalmonopoly,oligopoly,collusion,…):governmentsolutionsincludeanti-trustlaws,regulationsofpricesandquantities,publicfirms.Externalities:imposecosts(negativeexternalities)orbenefits(positiveexternalities)onotherswithoutpropercompensation,suchaspollution,trafficjam,noises,gardens,knowledgespillover.Withnegativeexternalities,peopletendtodomorethantheefficientlevel(becausetheydonotbearthecosts),sogovernmentsshouldregulatetolimittheoverdo.Withpositiveexternalities,peopletendtodolessthantheefficientlevel(becausetheydonotgetthebenefits),sogovernmentsshouldsubsidize,e.g.education,publichealth.Publicgoods(e.g.,nationaldefense,infrastructure,cleanenvironments):extremecaseofpositiveexternalitieswithnon-exclusivityandnonrivalry.Governmentsoftendecidehowmuchtoprovide.2025/2/92C:ThevisiblehandofgovernmentEquityreasons:marketeconomymayleadtoquiteunequalincomeandwealthdistribution(thoughefficient)thatisunacceptabletothesociety.Incomedistributiondependsonmanyfactors:efforts,education,abilities,inheritance,factorprices,luck.Whatisafairincomedistribution?InChina’scase,….Government’sroles:Taxtherich:progressivetax.Helpthepoor:transferspayments,subsidies,…Governmentprograms:socialsecurity,socialsafetynets(unemployment,medicalpayments,….)Howmuchshouldgovernmentdoinpursuingequity?IncentivestoworkProtectingbasichumanrightsSocialjusticeAsidefrommoraljudgment,onestillneedseconomicstoanalyzewhatisthemosteffectivewaytoachievetheequitygoals.2025/2/92C:ThevisiblehandofgovernmentGovernmentsalsousemacroeconomicpoliciestoachieveeconomicgrowthandstability.Thefoundingfatherofmodernmacroeconomics:Keynes.Governmentmacroeconomicpolicies:Fiscalpolicies:taxingandpublicspending(e.g.,stimul