Efficiency of Market Systems
... Once this trade has taken place and both parties are satisfied, a Pareto improvement has taken place. In an ideal world and in a closed system, this market system is flawless. Parties exchange goods and services in order to make everyone better off. Unfortunately in the real world this is not always the case. First we must assume six things in the market of ours. Full Information, Property rights, Rational behavior, Low/reasonable transaction coasts, No negative externalities (i.e. no third party is being harmed), and that there are no public goods. Once we have all these factors, we can assume that that market will naturally carry itself out. Based on the sheer intrinsic properties that are paramount to the system, it should lead toward Pareto Improvements and eventually Pareto Optimality. The market system extends itself to public goods as well. What happens when in the market for public goods we find each citizen asked to contribute a slight amount to benefit the greater good, and lead to a Pareto improvement. We will find certain people not contributing. Is this because the people do not want to see the changes take place, or because they are acting irrationally. Unfortunately not, this...