What happens when the prices of all goods are controlled? Under communism, or a command economy, this is exactly what occurs. As a result, all of the effects of price controls become amplified: there are even more shortages or surpluses of goods, lower...

We live in a world of scarcity. In other words, what we want outweighs what we can attain. Why? Well, we have limited resources – money, options, time, etc. When you’re making choices about what to buy, your budget, the prices of goods and services, and...

What are some solutions to moral hazard? We could try to make information less asymmetric — meaning both parties have similar information, making it harder for one party to exploit the other. We could also try to reduce the incentive of the agent to...

In our video on Maximizing Profit Under Monopoly, we cover how firms can use their market power to raise the price of a good well beyond its marginal cost. A practice question from the Microeconomics final exam asked you to find the total profit of a...

What’s the point of education?

Do you learn about things, because the learning itself matters, or is education all about the signal you -- and your degree -- send out to the world? Is education really about building skills, or does it serve only to...

A signal is an action that reveals information. Let’s look at higher education, for example. A large fraction of the value you receive from your degree comes on the day you earn your diploma. Your expected wages don’t increase with each class you...

Think through all of the variables that determine the price of a cup of coffee. It might help to imagine the coffee beans on the farm first. Consider the land costs and the price of the farmer’s labor. What about transportation of the beans to the...

Imagine you take your car in to the shop for routine service and the mechanic says you need a number of repairs. Do you really need them? The mechanic certainly knows more about car repair than you do, but it’s hard to tell whether he’s correct or even...

In this video, we discuss asymmetric information, adverse selection, and propitious selection in relation to the market for health insurance. Health insurance consumers come in a range of health, but to insurance companies, everyone has the same average...

What do we mean by “nonexcludable” and “nonrival” when talking about public goods? Public goods challenge markets because it’s difficult to charge non-payers and it’s inefficient to exclude anyone — so, how do we produce them? Public goods provide an...