Question

1. Write a short paragraph for each of the following concept clearly explaining what they mean with an event or story from your own life or read an article online that is related to economics.

Market Economy-

Rules and Institutions (Property Rights)

Market Failure ( Market Power )

Normative Statements

Thank you

Answer 1

Market economy

Market economy is a system where the law of supply and demand direct the production of goods and services.

Supply includes natural resources, land, labor and capital whereas demand includes purchases by consumers and business men.

One of the daily life example we can quote over here ,market economy includes investment we can see investments in our daily there are risk takers who takes risk and do the investment. Ambitious investor's make investments by forming a company.

Rules and institutions (property rights)

Property right focuses on absolute rights. It attempts to answer in which way the absolute rights should be distributed to solve negative externalities and thereby increase efficiency. For ideal distribution three points are important:

Universality

Exclusivity

Tranferability

One of the common example we can give of our daily scenario with the property rights it brings harmony in the economy with human cooperation because rules and regulations are defined.

Market failure

Where allocation of goods and services in the free market economy is not efficient .It often lead to social welfare loss. Allocation of scarce resources are not done efficiently. There are two types of market failure one is partial market failure another is complete market failure.

Partial market failure is when market does function properly but it sometime produces wrong quantity of products or poor pricing.

This can happen to any entrepreneurs, where they sometime fail to understand the market demand.

Complete market failure is when market simply do not supply products at all.

Market failure Concept can widely be used even in public utilities also .For example traffic congestion is again a failure from the government as allocation of manpower resource I.e traffic police have not been done.

Normative statement

In economics or Philosophy normative Statment expresses value judgement about whether a situation is desirable or undesirable. normative statements have some modal verbs like coud ;should" "Must".

Very common example of Normative statement is price of milk should be rs. 20/ this is a normative judgement which we common people use.