Chapter 1 Questions Response

1. When discussing markets McMillan gives a definition of one of their key aspects. "a market transaction, then is an exchange that is voluntary: each party can veto it, and (subject to the rules of the marketplace) each freely agrees to the terms."(6). This highlights several of the defining characteristics McMillan presents. First, as he puts it "decision-making autonomy is key...they are free to make decisions--to buy, to sell, to exert effort, to invest--that reflect their own preferences"(5). Second, competition is important. When competition is present on both sides it levels the playing field and adds to the autonomy. Third, a set of established rules must be present to govern the market. Without these rules, the market might not function properly and could actually hurt, rather than help. A final characteristic he points out is the spread of culture through the market. "As a byproduct of their trading activities, the merchants spread new ideas and inventions"(4).

2. I have observed both intensely positive and intensely negative feelings towards markets. One thing markets do is create winners and losers in some senses. If someone has come up with the short end of the stick, has no safety net, and as a result suffers greatly they may despise markets. Even just observing someone or groups of people suffering and feeling helpless can create a distrust in markets. On the other hand, government can be inefficient. There is a large amount of fraud and misused funds in government work. Some might not believe that the money lost due to inefficiency is worth the benefits gained from government work. Personally I'm not sure which way I lean. I believe that each situation is different and should be considered independently. That being said, I think in general a market with a solid set of rules is usually the ideal.

3. In the Law and Economics course we briefly discussed the role of the legal system in providing a set of rules to be used as a framework for exchange. Laws enforce contracts, define and protect property, determine liability, and prevent violence. All of these promote an environment of people being willing and able to efficiently exchange goods. Besides these, rules that reduce transaction costs, for instance the set pricing used in U.S. stores reducing the time and effort spent bartering and reducing accounting costs, are also very important.