From: ems@michael.apple.com (E. Michael Smith)
Newsgroups: sci.environment,sci.physics,sci.energy
Subject: What is Market Efficiency.  was Re: ZERO Nuclear impact (was: Is car pooling for real? etc)
Date: 27 Jul 92 20:59:56 GMT
Organization: Apple Computer Inc, Cupertino, CA

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.

>>	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...

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.

>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 ...

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).

If all this sounds like the boring drone of an Economics Professor,
well, I am an Econ major and I do teach (data processing) at the
Junior College level ... 

I'm not trying to take sides in all this, just defining the terms...


-- 

E. Michael Smith  ems@apple.COM

'Whatever you can do, or dream you can, begin it.  Boldness has
 genius, power and magic in it.'  -  Goethe

I am not responsible nor is anyone else.  Everything is disclaimed.
Newsgroups: sci.environment,sci.physics,sci.energy