Market Development

# Market Development

## Intro

As we’ve discussed in Chapter 12 & 13, lack of property rights and weak institutions lead to less opportunities to shrive, lower foreign investment and limited market scope. In other words, regular property rights and powerful institutions are essential to a health market.

In this chapter, we’ll see couples of historical facts and questions as follow.

Firstly, the fact that the slack market development in the poor countries, which considered to be associated with the unaffordable court charge, undeveloped communication technology, inefficient transportation, asymmetric information between buyers and sellers.

Secondly, as to the regions who experienced a transition economies, there usually was a fall in output when the central planning economy has shifted to a market economy. However, there was another fact in China, which didn’t go through this progress.

Thirdly, monopsony did happen in the developing countries and brought side effects to the native farmers. How did we do to help them avoid monopsony?

Fourthly, how did the market integration work and what were the reasons that hindered it?

Lastly, when and how did famines happen? Lets break them down one by one.

## Institutions and Market Development

### Taking Markets for Granted

The economists from the Central and Eastern Europe believed that in the procedure of market developing, the market was always true and unquestionable. However, their faith turned out to be a fiasco. Before the 1980s, the Central and Eastern Europe was under the system of socialism and operated by the central planning economy. So the government controlled what to produce, how to produce and how much to sell. After the transition, the free market was brought in and prices was liberalized. There was also un unexpected fall in output occurred. This will be explained later.

Another problem arose in the market economy was asymmetric information. Typically, the invisible hand of the market would force the demand and supply to reach an equilibrium and thus the price of one certain commodity will be totally the same. However, when there are some technologic difficulties between the communication of the buyers and sellers, profit-chasing merchandises are likely to seek opportunities to buy the same good at a lower price and sell it at higher price. And this did happen in the real world. Therefore, in order to make sure that there is just one single equilibrium price in the market, the information must be circulated efficiently and immediately from one to another.

What’s more, as we discussed