How Markets Work
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How Markets Work

Supply, Demand and the ‘Real World’

Robert E. Prasch

An accessible and enjoyable look at the way the market REALLY works! How Markets Work presents a new and refreshing introduction to elementary economics. The venerable theory of supply and demand is reconstituted upon plausible and defensible assumptions concerning human nature, the law, and the facts of everyday life – in short – the ‘Real World’. The message is that markets differ in ways that matter. Starting with a brief survey of property and contract law, the lectures develop several ‘ideal types’ of markets – such as credit, assets, and labor – while illuminating the similarities and differences among them. Care has been taken to ensure that the reformulations presented are accessible to students and compatible with a variety of non-mainstream traditions in economic thought.
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Chapter: Lecture VII: The economics of discrimination: the 'Chicago School' approach

Robert E. Prasch


LECTURE VII The economics of discrimination: the “Chicago School” approach Economists have long invoked analogies to the economic theory of commodity markets when examining the consequences of labor market discrimination. This theory of the market, as has been shown above, is constructed upon several important assumptions. Of specific interest to the issue of discrimination, the theory of the “perfectly competitive” market explicitly rejects the notion that distinctions of theoretical or practical consequence can be made between different commodities. Arguing from this premise, the “Neoclassical” or “Chicago School” approach to the study of discrimination has long been drawn upon to demonstrate that the “free market” can be relied upon to resolve the effects and thereby the legacies of discrimination (cf. Friedman, 1962, ch. 7; Becker, 1968, 1971; Sowell, 1981a, 1981b). Crucial to this “vision” are several assumptions concerning adjustment processes. Less clearly defended is the idea that these several assumptions are plausible characteristics of markets as they exist in the real world. If we are to understand the strengths and the weaknesses of the Chicago School approach to the economics of discrimination, readers must remain cognizant of these underlying assumptions. The reason is that they are essential to the construction of the theory, its conclusions, and the policy proposals that follow from it. In short, it is these assumptions that ultimately determine what, from the “Chicago School” perspective, may be taken to be plausible or implausible policies for undermining the consequences and possible persistence of labor market discrimination....

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