Cocktail Party Economics Analysis

Eveline Adomait and Richard Maranta, in their book titled “Cocktail Party Economics” (CPE), discuss certain conditions or characteristics which contribute towards the efficiency of competitive markets. For instance, a well-functioning free market which allows individuals to buy or sell what they want with the available methods that work best for them typifies the concept of freedom. This freedom to buy and sell leads to economic efficiency/surplus (Adomait & Maranta, 2012, p. 111 & 130). Such free markets force supply (marginal cost) to equal demand (marginal benefits) at the market price (Adomait & Maranta, 2012, p. 107), and the price must match the personal benefit of consuming the product (Adomait & Maranta, 2012, p. 108). These conditions

This is an example for an instance where the market outcome is less than efficient. Further examples can be found in chapter 11 of Cocktail Party Economics, where the authors have given “five general categories of problems that lead to market failure” or inefficiency i.e.: the market doesn’t have enough players in it, market activity produces either positive or negative spillover effects not taken into account by decision makers, property rights are either unclear or unenforceable, governments change the price or quantity of something, and some market participants know more than others about what is really going on (Adomait & Maranta, 2012, p. 130). A perfectly functioning competitive market is efficient. However it is unlikely that market outcomes are equitable.

This would even out the human capital across rich and poor families, and would enable poor children to get ahead. However, mere equalization achieves very little. Both CPE and a publication by the Friedrich Ebert Foundation in Bulgaria, titled “Equity vs. Efficiency: possibilities to lessen the trade-off in social, employment and education policy in South-East Europe” provides useful insight into this issue. Children from disadvantaged families usually do not have the same opportunities as those children from wealthier families to receive quality education; and public funding never fully levels the playing field since rich families are able to invest more in their children’s education by buying into neighbourhoods with better schools or better extracurricular activities (Adomait & Maranta, 2012, p. 114). Because of the less fortunate children’s minimal education, they will find badly paid jobs and earn less as adults. As badly educated citizens, they will not have much power in the political process, and will not be able to influence spending decisions to improve public schools for their children. Therefore, governments must seek to broaden the opportunities of those citizens who are disadvantaged. According to the aforementioned publication by Friedrich Ebert Foundation, the realisation of an efficiency and equity trade-off in education could be obtained through several ways. Some of which are;