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The limitations of markets: Background essay

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  • Goodwin, Neva

Abstract

Business leaders and voting citizens as well as policy makers are influenced in their decision-making by the idea that a “perfectly free” market can produce a social optimum (a “best of all possible worlds”). Because this idea is so influential, it is important to understand the conditions that must be met for the theory to work. The theoretic prediction of the optimality of market outcomes presupposes a number of requirements, which can be grouped into three broad categories: (1) the assumption of perfectly functioning markets; (2) market-oriented patterns of motivation and behavior, on the part of both individuals and firms; and (3) the universal existence and scope of markets.

Suggested Citation

  • Goodwin, Neva, 2005. "The limitations of markets: Background essay," MPRA Paper 27940, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27940
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    File URL: https://mpra.ub.uni-muenchen.de/27940/1/MPRA_paper_27940.pdf
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    References listed on IDEAS

    as
    1. William E. Kovacic & Carl Shapiro, 2000. "Antitrust Policy: A Century of Economic and Legal Thinking," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 43-60, Winter.
    2. Jonathan B. Baker, 1999. "Policy Watch: Developments in Antitrust Economics," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 181-194, Winter.
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    Cited by:

    1. Goodwin, Neva, 2010. "A New Economics for the 21st Century," MPRA Paper 27907, University Library of Munich, Germany.

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    More about this item

    Keywords

    optimality; market imperfections; public goods; externalities; transaction costs; market power; human needs; equity;
    All these keywords.

    JEL classification:

    • D0 - Microeconomics - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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