Unit 2: Responsiveness and the Value of Markets

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The degree to which individuals or firms, or any economic agent, respond to incentives is important to ascertain for pricing and policy purposes: If prices change, to what degree will suppliers and buyers respond? How will markets respond to taxes? Chapter 4 explores and develops the concept of elasticity, which is the word economists use to define responsiveness. A meaningful metric, one formulated in percentage terms, that is applicable to virtually any market or incentive means that behaviours can be compared in different environments.

In Chapter 5 we explore how markets allocate resources and how the well-being of society's members is impacted by uncontrolled and controlled markets. A central theme of this chapter is that markets are very useful environments, but, if they are to serve the social interest, need to be controlled in many circumstances.