succumbing to peer pressure

Sunday, July 22, 2007

Random question of the day:

I've been doing some major cleaning around here, going through old papers and whatnot, and found this in some class notes from a few years ago:

One sign of market failure is increasing prices, especially increasing prices in the face of increased demand; a good examples of this is healthcare.

My question is, is this a true statement? Help me out here economists - is this a general rule of thumb when discussing markets? And if so, what kinds of solutions are typically suggested?


Anonymous Anonymous said...

Nope - especially the second part. Increased demand is almost always going to lead to increasing prices. And inflation is generally going to lead to increasing prices in general. To find evidence for market failures, usually you have to look for something like restricted supply (i.e. below production capacity), information asymmetries, or collusion in setting prices.


6:53 PM  

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