Pearson eText Macroeconomics -- Access Card
Pearson eText Macroeconomics -- Access Card
7th Edition
ISBN: 9780136850014
Author: Hubbard, Glenn, O'Brien, Anthony
Publisher: PEARSON
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Chapter 11, Problem 11.1.3PA
To determine

The relationship between Shiue and Keller’s finding and North’s argument.

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Bakers are much    likely to supply pastries to the market if property rights are not enforced.   In the presence of market failures, public policy can improve economic efficiency.
When Adam Smith talked about “the invisible hand” he argued that:   High transaction costs normally prevent markets from achieving equilibrium. Prices, in the long run, end up where both fairness and efficiency are achieved. Changing prices leads to an “end” which buyers and sellers are not totally pleased with, but one that is efficient. Create mutually agreed upon prices over time if the market is subsidized.  As prices increase, demand falls, but supply rises, creating an equilibrium outcome. Self-interested activities help eliminate shortages and surpluses if price ceilings and price floors are effectively utilized.
Casinos in the US wanted to purchase decks of cards made in Mexico. It costs less than half the price paid to US suppliers. However, the price is based on the product outside the Mexican manufacturing doors. The US firm must find a way to transport the cards to the US. This is a problem given the current US regulations on transportation between Mexico and the US and the strong truck drivers union. In this case, casinos are experiencing:     Underinvestment in Mexico.     Language and cultural barriers in management.     Limited SI in Mexico.     High transaction costs and possible hold up problems.
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