2.12 The market's inability to achieve equity

Free markets can distribute gains unevenly.

Prices coordinate voluntary exchange, but initial assets, bargaining power, education and discrimination shape who receives income and opportunity.

Example

A rise in demand for a scarce skill can increase wages for trained workers while leaving others behind even as total output grows.

Separate efficiency from equity: identify the market outcome, then examine distribution and the policy trade-off.

‘Free’ does not mean fair or costless; externalities, unequal starting positions and missing markets can change the judgement.