Are Markets Everywhere?

Ann E. Davis, Marist College, Poughkeepspie, NY, 12601

This material was originally created for Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.

Summary

In this project, students will consider the formal institutional definition of markets, followed by two specific assignments. First, a brief in-class discussion will consider the specific example of the allocation of kidneys among patients, and ask the students to discuss the applicability of the definition of markets to this example. Second, students will then consider a creative commons text by Lawrence Lessig, Remix, and consider his definition of sharing, commercial, and hybrid economies. A brief paper is assigned to apply Lessig's definition to specific internet websites.

Learning Goals

The learning goal is the institutional definition of a market; that is the exchange of legal commodities for cash for profit. This definition excludes types of exchange in other institutional contexts for other motives, such as division of labor in marriage. Some of the applications which are used by Gary Becker, consequently, such as comparative advantage as applied to the gender division of labor in marriage or the economics of crime, are excluded by definition.

Context for Use

The context for use is the introduction of markets in principles of microeconomics. This emphasis on the institutional definition of markets clarifies the importance of the historical emergence of markets in 16th century Europe. This approach also clarifies that markets are not everywhere, and the choice of use of markets or alternative institutions is an important public policy decision.

Description and Teaching Materials

Materials include the following:
1. Definition of the market (document and power point files)
2. Alternative definitions of markets within economics (document)
3. Example of debate: is there a market for kidneys? Should there be a market for kidneys? Drawing upon Op Ed by Gary Becker, available from Business Week, 1/20/97; additional news coverage of the debate on markets for kidneys.
4. Lawrence Lessig, Remix (available free from Creative Commons)
5. Michael Sandel, videos on Fora TV
6. Assignment: select an internet service. Determine what type of economy it is, sharing, commercial, or hybrid. Explain, using the criteria from Lessig. Make use of cost analysis to predict pricing strategy (including MC = 0 and price = "free"). Predict the durability of this particular model.
Definition of the market (PowerPoint 1.2MB Jan12 13)
Alternative definitions of markets (Microsoft Word 31kB Jan12 13)
Is there a Market for Kidneys? (Acrobat (PDF) 74kB Jan12 13)
Market Forces vs. Economic Forces (Microsoft Word 31kB Jan12 13)
Remix, by Lawrence Lessig (Acrobat (PDF) 2.2MB Jan12 13)

Teaching Notes and Tips

The importance of teaching an institutional definition of the market is not universally accepted among economists. The implication of the usual axioms of economics is that markets always exist and are optimal. In this case, the question can be raised about whether markets are universal, and whether or not they should be. By allowing this question to emerge early in the student's exposure to economic theory, the instructor can question the usual separation of positive and normative economics, and can point to the relevance of ethical questions that are otherwise buried in the assumptions that markets always exist. This question can create confusion among students, but is ratified by the importance of the issues which can then be addressed.

This formal definition of markets then enables a discussion of "varieties of capitalism," in which different countries have different combinations of market, non-profit, and state, for different products and services. It also enables the discussion of institutional shifts historically and prospectively.

Questions such as whether or not markets for kidneys exist and should exist can be the subject of debates in class, where students are then exposed to the existence of different points of view, all of which can be justified.

Assessment

The initial presentation of the definition of the market has questions embedded, to assess the students' initial comprehension. There is a follow-up assignment, including a short paper, which provides further opportunity for assessment of the students' mastery of the institutional definition of markets and their ability to apply it to specific examples.