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Chapter 1. The essence of market economy
1.1. History of development
1.2. Classification of markets
1.3. Features of markets
1.4. “Invisible hand” of market economy
Chapter 2. Markets instruments. Advantages and disadvantages of market economy
2.1. Merits of market economy
2.2. Demerits of market economy
Chapter 3. Modern market economy. The world crisis and market economy
Market Economy:merits fnd demerits
Фрагмент работы для ознакомления
Unmistakably agreeing with Anderson and Martin, the American Bankers Association, meeting in Atlantic City, voted a resolution calling upon the Government to keep up its fight against, inflation. In a speech to the bankers, U.S. Steel Corp.'s Board Chairman Roger M. Blough urged a two-point anti-inflation program to supplement Government policies: 1) efforts by management and labor to increase productivity, and 2) restraint by both to keep wage rises from outpacing productivity. In effect, Blough was restating Dwight Eisenhower's theme: in a free economy, the Government cannot defeat inflation without help from business and labor. And help is urgently needed20.
In my work has been studied the main definition of market.
- Economics is best described as the study of humans behaving in response to having only limited resources to fulfill unlimited wants and needs.
- Scarcity refers to the limited resources in an economy. Macroeconomics is the study of the economy as a whole. Microeconomics analyzes the individual people and companies that make up the greater economy.
- The Production Possibility Frontier (PPF) allows us to determine how an economy can allocate its resources in order to achieve optimal output. Knowing this will lead countries to specialize and trade products amongst each other rather than each producing all the products it needs.
- Demand and supply refer to the relationship price has with the quantity consumers demand and the quantity supplied by producers. As price increases, quantity demanded decreases and quantity supplied increases.
- Elasticity tells us how much quantity demanded or supplied changes when there is a change in price. The more the quantity changes, the more elastic the good or service. Products whose quantity supplied or demanded does not change much with a change in price are considered inelastic.
- Utility is the amount of benefit a consumer receives from a given good or service. Economists use utility to determine how an individual can get the most satisfaction out of his or her available resources.
- Market economies are assumed to have many buyers and sellers, high competition and many substitutes. Monopolies characterize industries in which the supplier determines prices and high barriers prevent any competitors from entering the market. Oligopolies are industries with a few interdependent companies. Perfect competition represents an economy with many businesses competing with one another for consumer interest and profits.
Merits of Market economy:
- the market produces a wide variety of goods and services to meet the consumer's wants;
- the free market responds quickly to people's wants;
- the market system encourages the use of new and better methods and machines to produce goods and services.
- factors of production will be employed if only it's profitable to do so;
- the free market can fail to provide certain goods and services;
- the free market may encourage the consumption of harmful goods;
- the social effects of production may be ignored;
- the market system allocates more goods and services to those consumers who have more money than others.
Searched the modern market and fine the main reasons of world crisis.
I have known that the all crisis connected with the economical (inflation, stock market), political and ethnical situation in the high developed industrial countries.
The financial crisis of 2007-2010 was triggered by a liquidity shortfall in the United States banking system. It has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Many causes have been suggested, with varying weight assigned by experts. Both market-based and regulatory solutions have been implemented or are under consideration, while significant risks remain for the world economy over the 2010–2011 periods.
Any one country with marketing economic can to resolve he crises without helping of government. The role of the national and state governments in the market economy is debatable, although it has been found that government interventions are sometimes necessary. In these cases, the government mainly deals with the formation and implementation of rules and regulations and ensures that monopolistic behavior does not obstruct competition in the marketplace.
Regardless of the government’s role, decisions made in a free market economy are primarily made by the ‘invisible hand’ of market forces - and not mandates issued by the government.
1. "Bernanke-Four Questions". Federalreserve.gov. April 14, 2009. http://www.federalreserve.gov.htm. Retrieved May 1, 2010.
2. Brookings - Financial Crisis (PDF). http://www.brookings.edu. Retrieved May 1, 2010.
3. "Declaration of G20". Whitehouse.gov. http://georgewbush-whitehouse. archives.gov/news/. Retrieved February 27, 2009.
4. "Episode 06292007". Bill Moyers Journal. PBS. June 29, 2007. Transcript.
5. "Obama-Regulatory Reform Speech June 17, 2009". Whitehouse.gov. June 18, 2009. http://www.whitehouse.gov/the_press_office/Remarks-of-the-President-on-Regulatory-Reform/. Retrieved May 1, 2010.
6. Cossa, Luigi. An Introduction to the Study of Political Economy, London and New York: Macmillan, 2003, 356p.
7. Ekelund, Robert B., Jr. and Robert F. Hébert A History of Economic Theory and Method. Waveland Press. 5th ed. ISBN `1-57766-486-8.Description, 2007, 423p.
8. Fusfeld, Daniel R. The Age of the Economist, Harper Collins, 7th Ed, 2007, 412p, ISBN 0673468054,
9. Hague, William. William Pitt the Younger Harper Perennial, 2004, ISBN 0007147201
10. Heilbroner, Robert, The Worldly Philosophers, Simon & Schuster 7th Ed. 2009, 506p, ISBN 0-684-86214-X
11. Lahart, Justin (December 24, 2007). "Egg Cracks Differ In Housing, Finance Shells". The Wall Street Journal. http://online.wsj.com/article/SB119845906460548071.html. Retrieved July 13, 2008.
12. Macfie, Alec Lawrence, "The Scottish Tradition in Economic Thought". Econ Journal Watch 6(3): 389-410. Reprinted from Scottish Journal of Political Economy 2(2): 81-103, 2005, 305p.
13. Markwell, Donald. John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press, 2006, 304p.
14. Medema, Steven G., abd Warren J. Samuels,. The History of Economic Thought: A Reader. Routledge. Description & chapter links, pp. vii-ix, 2003.
15. Mochrie, Robert. Justice in Exchange: The Economic Philosophy of John Duns Scotus, 2005, 256р.
16. Nicola, PierCarlo. Mainstream Mathermatical Economics in the 20th Century. Springer, 2009, 305p. ISBN 9783540670841. http://books.google.com/?id? 12.12.10.
17. Pressman, Steven. Fifty Major Economists, Routledge, 2006, ISBN 0415366496
18. Roubini-10 Risks to Global Growth. Forbes. May 27, 2009. http://www.forbes.com/2009/05/27/recession-depression-global-economy-growth-opinions-columnists-nouriel-roubini.html. Retrieved May 1, 2010.
19. Schumpeter, Joseph, History of Economic Analysis, Description. Chapter-preview links for Parts I-V (arrow-page searchable). Routledge Ed. 2007, 1,260 pp. ISBN 0415108926
20. Screpanti, Ernesto, Stefano Zamagni. An Outline of the History of Economic Thought, 2nd ed. Oxford University Press. Description & ch.-preview links, 2005, pp. xi-xviii
21. Spengler, Joseph J., and William R. Allen, ed. Essays in Economic Thought: Aristotle to Marshall+. Rand McNally. 2004, 561p.
22. Spiegel, Henry William, The Growth of Economic Thought, Duke University Press, 3rd Ed. 1999, 532p, ISBN 0822309653
23. Stephen, Leslie, "Smith, Adam". Dictionary of National Biography, 1885–1900. London: Smith, Elder & Co. 2005, 245p.
24. Stigler, George J. Essays in the History of Economics. University of Chicago Press. 2005, 605p.
25. This American Life. "NPR-The Giant Pool of Money-April 2009. Pri.org. http://www.pri.org/business/giant-pool-of-money.html. Retrieved May 1, 2010.
26. Three top economists agree 2009 worst financial crisis since great depression; risks increase if right steps are not taken. (February 29, 2009). Reuters. Retrieved 2009-09-30, from Business Wire News database.
27. World Economic Outlook: Crisis and Recovery, April 2009 (PDF). http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/text.pdf. Retrieved May 1, 2010.
The history of theory and hypothesis
Scientists and his Activities
The prominent Italian mathematician, Girolamo Cardano, in Liber de Ludo Aleae (The Book of Games of Chance) wrote: “The most fundamental principle of all in gambling is simply equal conditions, e.g. of opponents, of bystanders, of money, of situation, of the dice box, and of the die itself. To the extent to which you depart from that equality, if it is in your opponents favour, you are a fool, and if in your own, you are unjust.”
Scottish botanist, Robert Brown, noticed that grains of pollen suspended in water had a rapid oscillatory motion when viewed under a microscope.
A French stockbroker, Jules Regnault, observed that the longer you hold a security, the more you can win or lose on its price variations: the price deviation is directly proportional to the square root of time.
The British physicist, Lord Rayleigh, (through his work on sound vibrations) is aware of the notion of a random walk.
John Venn, the British logician and philosopher, had a clear concept of both random walk and Brownian motion.
Efficient markets were clearly mentioned in a book by George Gibson entitled The Stock Markets of London, Paris and New York. Gibson wrote that when “shares become publicly known in an open market, the value which they acquire may be regarded as the judgment of the best intelligence concerning them.”
Alfred Marshall wrote Principles of Economics.
A French mathematician, Louis Bachelier, published his PhD thesis, Théorie de la spéculation. He developed the mathematics and statistics of Brownian motion five years before Einstein (1905). He also deduced that “The mathematical expectation of the speculator is zero” 65 years before Samuelson (1965) explained efficient markets in terms of a martingale. Bachelier’s work was way ahead of his time and was ignored until it was rediscovered by Savage in 1955.
Karl Pearson, a professor and Fellow of the Royal Society, introduced the term “random walk” in the letters pages of Nature.
Unaware of Bachelier’s work in 1900, Albert Einstein developed the equations for Brownian motion.
Bachelier A Polish scientist, Marian Smoluchowski,
described Brownian motion.
Bachelier’s arguments can also be found in André Barriol’s book on financial transactions.
De Montessus published a book on probability and its applications, which contains a chapter on finance based on Bachelier's thesis.
Langevin authors the stochastic differential equation of Brownian motion.
George Binney Dibblee published “The laws of supply and demand”.
Bachelier published the book, Le Jeu, la Chance et le Hasard (The Game, the Chance and the Hazard), which sold over six thousand copies.
According to Mandelbrot (1963) the first to note that distributions of price changes are too “peaked” to be relative to samples from Gaussian populations was Wesley C. Mitchell.
F. W. Taussig published a paper under the title, “Is Market Price Determinate?”
Keynes clearly stated that investors on financial markets are rewarded not for knowing better than the market what the future has in store, but rather for risk baring, this is a consequence of the EMH.
Frederick MacCauley, an economist, observed that there was a striking similarity between the fluctuations of the stock market and those of a chance curve which may be obtained by throwing a dice.
Unquestionable proof of the leptokurtic nature of the distribution of returns was given by Maurice Olivier in his Paris doctoral dissertation.
Frederick C. Mills, in The Behavior of Prices, proved the leptokurtosis of returns.
Stock-market crash in late October.
Alfred Cowles, the American economist and businessman, founded and funded both the Econometric Society and its journal, Econometrica.
Cowles set up the Cowles Commission for Economic Research.
Alfred Cowles 3rd analysed the performance of investment professionals and concluded that stock market forecasters cannot forecast.
Holbrook Working concludes that stock returns behave like numbers from a lottery.
English economist, John Maynard Keynes has General Theory of Employment, Interest, and Money published. He famously compares the stock market with a beauty contest, and also claims that most investors’ decisions can only be as a result of “animal spirits”.
Eugen Slutzky shows that sums of independent random variables may be the source of cyclic processes.
In the only paper published before 1960 which found significant inefficiencies, Cowles and Jones found significant evidence of serial correlation in averaged time series indices of stock prices.
In a continuation of his 1933 publication, Cowles again reported that investment professionals do not beat the market.
Holbrook Working showed that in an ideal futures market it would be impossible for any professional forecaster to predict price changes successfully.
Milton Friedman points out that, due to arbitrage, the case for the EMH can be made even in situations where the trading strategies of investors are correlated.
Kendall analysed 22 price-series at weekly intervals and found to his surprise that they were essentially random. Also, he was the first to note the time dependence of the empirical variance (nonstationarity).
Around this time, Leonard Jimmie Savage, who had discovered Bachelier’s 1914 publication in the Chicago or Yale library sent half a dozen “blue ditto” postcards to colleagues, asking “does any one of you know him?” Paul Samuelson was one of the recipients. He couldn't find the book in the MIT library, but he did discover a copy of Bachelier’s Ph.D. thesis.
Bachelier’s name reappeared in economics, this time, as an acknowledged forerunner, in a thesis on options-like pricing by a student of MIT economist Paul A. Samuelson.
Working builds an anticipatory market model.
Harry Roberts demonstrates that a random walk will look very much like an actual stock series.
M. F. M. Osborne shows that the logarithm of common-stock prices follows Brownian motion; and also found evidence of the square root of time rule. Regarding the distribution of returns, he finds ‘a larger “tangential dispersion” in the data at these limits.’
Larson presents the results of application of a new method of time-series analysis. He notes that the distribution of price changes is "very nearly normally distributed for the central 80 per cent of the data, but there is an excessive number of extreme values."
Cowles revisits the results in Cowles and Jones (1937), correcting an error introduced by averaging, and still finds mixed temporal dependence results.
Working showed that the use of averages can introduce serial correlations not present in the original series.
Houthakker uses stop-loss sell orders and finds patterns. He also finds leptokurtosis, nonstationarity and suspects nonlinearity.
Independently of Working (1960), Alexander realised that spurious autocorrelation could be introduced by averaging; or if the probability of a rise is not 0.5. He concluded that the random walk model best fits the data, but found leptokurtosis in the distribution of returns. Also, this paper was the first to test for nonlinear dependence.
John F. Muth introduces the rational expectations hypothesis in economics.
Mandelbrot first proposes that the tails follow a power law, in IBM Research Note NC-87.
Paul H. Cootner concludes that the stock market is not a random walk.
Osborne investigates deviations of stock prices from a simple random walk, and his results include the fact that stocks tend to be traded in concentrated bursts.
Arnold B. Moore found insignificant negative serial correlation of the returns of individual stocks, but a slight positive serial correlation for the index.
Jack Treynor’s unpublished manuscript: “Toward a Theory of Market Value of Risky Assets”
Berger and Mandelbrot propose a new model for error clustering in telephone circuits, and if their argument is applicable to stock trading, it might afford justification for the Pareto-Levy distribution of stock price changes claimed by Mandelbrot.
Granger and Morgenstern perform spectral analysis on market prices and found that short-run movements of the series obey the simple random walk hypothesis, but that long-run movements do not, and that “business cycles” were of little or no importance.
Benoit Mandelbrot presents and tests a new model of price behaviour. Unlike Bachelier, he uses natural logarithms of prices and also replaces the Gaussian distributions with the more general stable Paretian.
Fama discusses Mandelbrot’s “stable Paretian hypothesis” and concludes that the tested market data conforms to the distribution.
Alexander answers the critics of his 1961 paper and concludes that the S&P industrials does not follow a random walk.
Cootner edited his classic book, The Random Character of Stock Market Prices, a collection of papers by Roberts, Bachelier, Cootner, Kendall, Osborne, Working, Cowles, Moore, Granger and Morgenstern, Alexander, Larson, Steiger, Fama, Mandelbrot and others.
Godfrey, Granger and Morgenstern publish “The Random Walk Hypothesis of Stock Market Behavior”.
Steiger tests for nonrandomness and concludes that stock prices do not follow a random walk.
Sharpe’s Nobel prize winning work on the Capital Asset Pricing Model.
Fama defines an “efficient” market for the first time, in his landmark empirical analysis of stock market prices that concluded that they follow a random walk.
Samuelson provided the first formal economic argument for “efficient markets”. His contribution is neatly summarized by the title of his article: “Proof that Properly Anticipated Prices Fluctuate Randomly”. He (correctly) focussed on the concept of a martingale, rather than a random walk (as in Fama (1965)).
Fama explains how the theory of random walks in stock market prices presents important challenges to both the chartist and the proponent of fundamenatl analysis.
Fama and Blume concluded that for measuring the direction and degree of dependence in price changes, serial correlation is probably as powerful as the Alexandrian filter rules.
Mandelbrot proved some of the first theorems showing how, in competitive markets with rational risk-neutral investors, returns are unpredictable—security values and prices follow a martingale.
Harry Roberts coined the term “efficient markets hypothesis” and made the distinction between weak and strong form tests, which became the classic taxonomy in Fama (1970).
Ball and Brown were the first to publish an event study.
Michael C. Jensen evaluates the performance of mutual funds and concludes that “on average the funds apparently were not quite successful enough in their trading activities to recoup even their brokerage expenses.”
Fama, Fisher, Jensen and Roll undertook the first ever event study, and their results lend considerable support to the conclusion that the stock market is efficient.
1.""Bernanke-Four Questions"". Federalreserve.gov. April 14, 2009. http://www.federalreserve.gov.htm. Retrieved May 1, 2010.
2.Brookings - Financial Crisis (PDF). http://www.brookings.edu. Retrieved May 1, 2010.
3.""Declaration of G20"". Whitehouse.gov. http://georgewbush-whitehouse. archives.gov/news/. Retrieved February 27, 2009.
4.""Episode 06292007"". Bill Moyers Journal. PBS. June 29, 2007. Transcript.
5.""Obama-Regulatory Reform Speech June 17, 2009"". Whitehouse.gov. June 18, 2009. http://www.whitehouse.gov/the_press_office/Remarks-of-the-President-on-Regulatory-Reform/. Retrieved May 1, 2010.
6.Cossa, Luigi. An Introduction to the Study of Political Economy, London and New York: Macmillan, 2003, 356p.
7.Ekelund, Robert B., Jr. and Robert F. Hebert A History of Economic Theory and Method. Waveland Press. 5th ed. ISBN `1-57766-486-8.Description, 2007, 423p.
8.Fusfeld, Daniel R. The Age of the Economist, Harper Collins, 7th Ed, 2007, 412p, ISBN 0673468054,
9.Hague, William. William Pitt the Younger Harper Perennial, 2004, ISBN 0007147201
10.Heilbroner, Robert, The Worldly Philosophers, Simon & Schuster 7th Ed. 2009, 506p, ISBN 0-684-86214-X
11.Lahart, Justin (December 24, 2007). ""Egg Cracks Differ In Housing, Finance Shells"". The Wall Street Journal. http://online.wsj.com/article/SB119845906460548071.html. Retrieved July 13, 2008.
12.Macfie, Alec Lawrence, ""The Scottish Tradition in Economic Thought"". Econ Journal Watch 6(3): 389-410. Reprinted from Scottish Journal of Political Economy 2(2): 81-103, 2005, 305p.
13.Markwell, Donald. John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press, 2006, 304p.
14.Medema, Steven G., abd Warren J. Samuels,. The History of Economic Thought: A Reader. Routledge. Description & chapter links, pp. vii-ix, 2003.
15.Mochrie, Robert. Justice in Exchange: The Economic Philosophy of John Duns Scotus, 2005, 256р.
16.Nicola, PierCarlo. Mainstream Mathermatical Economics in the 20th Century. Springer, 2009, 305p. ISBN 9783540670841. http://books.google.com/?id? 12.12.10.
17.Pressman, Steven. Fifty Major Economists, Routledge, 2006, ISBN 0415366496
18.Roubini-10 Risks to Global Growth. Forbes. May 27, 2009. http://www.forbes.com/2009/05/27/recession-depression-global-economy-growth-opinions-columnists-nouriel-roubini.html. Retrieved May 1, 2010.
19.Schumpeter, Joseph, History of Economic Analysis, Description. Chapter-preview links for Parts I-V (arrow-page searchable). Routledge Ed. 2007, 1,260 pp. ISBN 0415108926
20.Screpanti, Ernesto, Stefano Zamagni. An Outline of the History of Economic Thought, 2nd ed. Oxford University Press. Description & ch.-preview links, 2005, pp. xi-xviii
21.Spengler, Joseph J., and William R. Allen, ed. Essays in Economic Thought: Aristotle to Marshall . Rand McNally. 2004, 561p.
22.Spiegel, Henry William, The Growth of Economic Thought, Duke University Press, 3rd Ed. 1999, 532p, ISBN 0822309653
23.Stephen, Leslie, ""Smith, Adam"". Dictionary of National Biography, 1885–1900. London: Smith, Elder & Co. 2005, 245p.
24.Stigler, George J. Essays in the History of Economics. University of Chicago Press. 2005, 605p.
25.This American Life. ""NPR-The Giant Pool of Money-April 2009. Pri.org. http://www.pri.org/business/giant-pool-of-money.html. Retrieved May 1, 2010.
26.Three top economists agree 2009 worst financial crisis since great depression; risks increase if right steps are not taken. (February 29, 2009). Reuters. Retrieved 2009-09-30, from Business Wire News database.
27.World Economic Outlook: Crisis and Recovery, April 2009 (PDF). http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/text.pdf. Retrieved May 1, 2010.
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