Inside Job Essay

598 Words3 Pages
Micro Economics Inside Job Documentary 1.) Neoclassical Theory does explain the functionality of financial Markets. For example, when referring to the circular flow diagram, the Neoclassical Theory shows how markets function with resources, consumers, goods & services and finally distribution. Neoclassical Theory also describes in detail how people have rational preferences among outcomes. Second, individuals maximize utility & firms maximize profits. People tend to act independently on the basis of full, & relevant information. 2.) The market structure needs to be competitive so that it would makes all firms more stable. It also relates to profit maximization when referring to perfect competition. Under perfect competition each individual firm is too small to influence price. Therefore, it would need to be a perfect competition to be best suited for the financial sector. When firms are in perfect competition, this means that economic flow is better. This leads to interest rates dropping as well as improved economic condition. When this happens, there are larger investments which in turn improve the financial sector. 3.) Yes, there are externalities present within this documentary. Throughout the movie, there were always the insights of Kristin Davis. A Wall-Street madam, who continuously gave her biased opinion of the matter within the film. The reason being, is because she refers solely to “sex & drugs as the economic depressant” when in fact this is not the case. The depressant rather would be in relation to investments & firms. When individuals for example don’t know how to handle the money and losing money, this would be an externality. If this happens, the companies and the people within the firms lose money. 4.) From the documentary, the Neoclassical Theory shows that the equilibrium wages are in fact

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