From: crb7q@kelvin.seas.Virginia.EDU (Cameron Randale Bass)
Newsgroups: sci.environment,sci.physics,sci.energy
Subject: Re: What is Market Efficiency.  was Re: ZERO Nuclear impact (was: Is car pooling for real? etc)
Date: 28 Jul 92 04:01:42 GMT
Organization: University of Virginia

In article <1992Jul27.205956.14972@michael.apple.com> ems@michael.apple.com (E. Michael Smith) writes:
>In article <1992Jul24.205505.14538@murdoch.acc.Virginia.EDU> crb7q@kelvin.seas.Virginia.EDU (Cameron Randale Bass) writes:
>>In article <1992Jul23.034645.2791@nmt.edu> houle@nmt.edu (Paul Houle) writes:
>>>In article <1992Jul22.200320.7520@murdoch.acc.Virginia.EDU> crb7q@kelvin.seas.Virginia.EDU (Cameron Randale Bass) writes:
>
>>>>     If one assumes market efficiency, there is always a sacrifice 
>>>>     in cutting electricity usage.  
>
>Why?  Technologies can change over time leading to a new market 
>equilibrium at a lower consumption rate even in an efficient market.
>And with no sacrifice in consumer happiness.  Take CF bulbs, for example.

    You are absolutely correct.  I guess the assertion above is a 
    bit too sweeping.  Change, 'always' to 'usually' and insert
    my skepticism that projections that we have discussed in
    this thread before represent a situation such as you have
    described above.

    Without such things, usually, the market takes care of 
    uneconomical overusage.  

>>>	I don't.  It's pretty hard to believe that the market for
>>>cigarettes is efficient.  Or the market for baby formula in the third
>>>world.
>>
>>     The market for cigarettes is extremely efficient.  
>
>No, it isn't.
>
>Market efficiciency has nothing to do with production.  It has to 
>do with information availbility to consumers and the making of 
>efficient choices at the point of sales...
>
>In an efficient market, one would not pay extra to have a smiling
>Camel Face tell you that an otherwise indistunguishable product was
>worth more ...  In an efficient market (and several 3rd world economies
>are capitalist) a third world mother wouldn't forgo breast milk to 
>spend inordinate percentages of family income on formula to make her
>child sick ... just because the advertizing made it sound more modern...

     There is a certain amount of product loyalty and taste involved
     in the cigarette market as in any other consumer market.  This 
     does not decrease the efficiency of the market.

>In both cases the product may be very efficiently manufactured, produced,
>distributed, etc.  But the market is still not an 'efficient market' since
>the consumers are making choices that are not reflecting a full knowledge
>of the alternatives.

     This is a strange way to look at economic efficiency of a market
     for a product.  I agree completely that it may be more 'efficient'
     in a sociological context if no one smoked and all mothers breastfed.
     However, people smoke.  And in this country, people use formula
     that does not harm their children (my child, for example).
     These people constitute a market.  For cigarettes, I claim that
     the market obtains economic efficiency in spite of government taxation
     and price supports.  For formula, the situation may be somewhat different
     since there may be price collusion among the major manafacturers.

>>Take away the
>>     taxes and recognize that there is a filter and paper and one
>>     whole bunch of processing as well as distribution and other
>>     related costs.  Factor in the artificial inflation of the 
>>     raw materials due to government interference and I think you will 
>>     be amazed at the ability of RJR to produce so cheaply.
>                                      ^^^^^^^^^^
>>     As far as third world countries goes, I suppose you realize that 
>>     many do not have free markets.
>
>Free markets and efficient markets are not the same thing ...

     True, but what of it?

>In many cases, the effect of a very free market is to make it less 
>efficient since there is more crap for the buyer to wade through to 
>determine the facts that lead to an efficient market.  (Higher search
>costs leading to a less effective search leading to a lower market 
>efficiency).

     What is this?  Marxist econ 101?

     Supposedly the market balances the incremental costs to wade
     through a number of competing products with the increased 
     possibility of a less expensive solution to whatever particular
     problem you have (say recurrent yeast infection).

     Have the definitions of market efficiency changed since I 
     went to school a decade ago?  If so, I like the old ones.  They
     don't seem to have as much sociological garbage thrown in.

                                 dale bass
--
C. R. Bass                                           crb7q@virginia.edu
Department of Mechanical and Aerospace Engineering
University of Virginia
Charlottesville, Virginia                            (804) 924-7926
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