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5 Pages • Topic Notes • Year Uploaded: 2024
Introduction • Prices are messages about conditions in the economy, and provide motivation for acting on this information. • People take advantage of rent-seeking opportunities when competitive markets are not in equilibrium, often profiting by setting a price different from what others are setting. • This rent-seeking process may eventually equate supply to demand. • Governments and firms sometimes set prices and adopt other policies such that markets do not clear. • Prices convey valuable information about how scarce a good is, but information that is available only if prices are free to be determined by supply and demand, rather than by the decisions of planners. • Rent-seeking behaviour by market participants can bring about market clearing, move markets to different equilibria in the long run, cause bubbles and crashes, or lead to the development of secondary markets in response to price controls.
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