Transcript Property Rights in a Market Economy

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What do you think makes a market economy
(capitalism) different from the economic
system of Cuba or North Korea?
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10 volunteers will be paid to pick up paper
clips in two rounds; the paper clips represent
whales in the ocean
You may pick up paper clips from any box –
don’t worry about the lines of separation
 Session 1: 30 seconds, 1/8 extra credit point for
each paper clip
 Session 2: 30 seconds, 1/4 extra credit point for
each paper clip
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You may only pick up paper clips that fall into
your assigned “cell”
 Session 1: 30 seconds, 1/8 extra credit point for
each paper clip
 Session 2: 30 seconds, 1/4 extra credit point for
each paper clip
Today’s LEQ: When should the government get
involved in a market economy?
1.
2.
3.
4.
5.
6.
Why did people have incentives in Round 1 to pick up the clips
during the first 30 seconds even though the payoff was higher if
they waited?
Why did people have incentives in Round 2 to pick up the clips
during the second 30 seconds?
What did you do in Round 2 about the clips that fell on the
boundaries?
Imagine the paper clips were whales, the floor was the ocean, and
the student volunteers were whale hunters. How can this activity
relate to the problems of harvesting whales?
Think about the amount of beef and chicken consumed every day.
Why aren’t cattle and chickens in danger of extinction, along with
whales?
Think of other resources for which property rights are not clearly
defined. What problems occur as a result?
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DO NOT ATTEMPT TO TURN OFF THE
MUSIC! Seriously… It has to do with what
we’re learning today. 
Take out your class notes!!
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Compare resource use when property rights
are clearly defined with resource use when
rights are not clearly defined
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Private property
Free enterprise
Self-interest
Competition
A price system
Limited government
 Individual ownership and
control of resources and
products
 Intellectual and physical
IF
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property rights are well defined and
enforced and the market is competitive,
resources are usually used in the most valued
manner
Private ownership encourages:
 people to take good care of their property
 productive development of property
 Conservation of resources for the future
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Think: Purchased Home vs. Rental Property
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People respond to incentives and, often
times, consequences of actions lie in the
future
When property rights aren’t clearly defined,
people acting in their own self-interest may
respond to incentives that counter long-run
objectives of society
 Example: Pollution
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Unfortunately, property rights to many
natural resources are poorly defined
Resources may be wasted or used
inefficiently
The absence of property rights causes a
market failure. An important role for
government in a market economy is to try to
ensure that property rights are clearly
defined and protected.