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Three Types of Economic Ignorance

Once upon a time, I used to occasionally write educational posts about economics. I haven't done it in a while because I seem to have other things on my mind, but I have been thinking that maybe I should start them up again. If you'd be interested, please shout up and comment.

The reason I did these posts is that I think that knowing something about the way the world works (which is ultimately what economics is) seems to me to be a necessarty condition for taking part in important discussions and decisions. And yet very few people ever get taught any economics, or take the time to educate themselves.

As something of a warmup, I really liked this article on the Three Kinds of Economic Ignorance by Professor Steven Horwitz.

If you want to read some of the older posts, here's the full list to give you some idea:



( 8 comments — Leave a comment )
Mar. 6th, 2016 03:14 pm (UTC)
*waves* - I find your educational economics posts interesting
Mar. 6th, 2016 05:38 pm (UTC)
Thank you!

LJ could actually be a great little educational platform. The post lengths are about right. You can illustrate. And people can ask questions in the comments.
Mar. 6th, 2016 09:09 pm (UTC)
*adds more waving*
Mar. 7th, 2016 09:15 am (UTC)
Waves back!
Mar. 7th, 2016 08:53 am (UTC)
Totally ignorant on economics - unless you count reading the odd paragraph on it in an RPG! :-) - so yes, please.

Ignorant question for you... I've always heard politicians saying that competition needs to be encouraged to make things better for customers, etc. e.g. There should be 3 shoe shops on the High Street not just one.

However, as a biologist, the end point of competition is either:
a) Speciation. Start with 3 shoe shops, end up with a women's shoe shop, a men's shoe shop and a ballet shoes shop. (Speciation is pretty much a long term thing)
b) Extinction. Start with 3 shoe shops, end up with 1. (Extinction can be short term - 9 of 10 in the litter of foxes have died. Or long term - the whole red fox species is extinct, 'cos feral dogs stole their niche).

Presumably this is NOT the sort of competition that is envisioned by economists?! Can you explain the proper definition, please?
Mar. 7th, 2016 09:29 am (UTC)
Short answer: When there are three shoe shops, they have to work to attract customers away from the other two. So, they'll introduce better and more diverse ranges, reduce their prices etc. All of which is great for the shoe shopper.

Longer answer: We're getting into issues of market structure here, which is one of my favourite areas of microeconomics. (It was one of my option papers at university.) This also touches on a concept called consumer surplus or total welfare (basically the extra amount that consumers, in aggregate, would have been willing to pay for an item over what they actually paid for it). I think you may have given me the subject for my next couple of posts...

One of the complications of this area of economics is that although competitive markets generally produce more competitive surplus, they also produce less profit for the suppliers in the market. So they often tend towards exactly the situations you describe as a) and b). More than that, the low levels of profit don't exactly attract new entrants to the market either. So you're then faced with the question of whether governments should intervene to keep markets competitive.
Mar. 7th, 2016 06:01 pm (UTC)
Mar. 7th, 2016 08:54 am (UTC)
I'm interested. But I said that before. :-D
( 8 comments — Leave a comment )