The ideal picture of markets presented in the last chapter has now been balanced with some awareness of their possible flaws. We can't assume that markets always work well, or that the unintended consequences of buyers' and sellers' actions will always serve the public interest. Even so, the consensus among contemporary economists, regardless of political conviction, is that an imperfect market system is far better than none at all. We do not live in a world that can be made perfect. Our task is to choose among the imperfect alternatives, the achievable worlds.
The basic contours of the economic argument have been laid out. You have seen the beginnings of what economists have to say about choice, the accounting of budget constraints under which people make choices, the market as the coordinator of individual choices, and now some critical questions about the role and effectiveness of the market. These notions constitute the basic vocabulary of economics, the materials for its conversation. As the British Prime Minister, Winston Churchill, said after an air victory early in their struggle against Hitler: "This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
Not all markets work perfectly well, and at times they fail to work at all.
1. The main market failures are a) price inflexibility, b) market power c) unequal distribution of information, d) and instability. Markets for public goods and bads are often absent and in any case markets can be considered unfair or unethical.
2. When markets are failing, absent, or unfair the government may consider wielding its visible hand by taxing, regulating, or spending.
3. Not all economic behavior is market behavior. Besides the exit option, which characterizes market behavior, people can talk and negotiate - the voice option - or respect the norm or an authority - the loyalty option.
4. There are many different economic systems. By definition all economies are mixed economy, with roles for both markets and the government.