Imperfection as the Norm

Although we generally teach economics as if markets formed a perfect system, in reality, there are many instances of partial and complete market failure in the real economy. Imperfections complicate models and analyses. Therefore, it is better to first introduce students to the model of the ideal-typical perfect system. In addition, in many circumstances, equilibrium and partial equilibrium models derived from the ideal-typical system have yielded good insights and results. However, ignoring imperfections carries several costs, including neglect of the role of institutions, and probably too much confidence in the self-correcting power of markets by policy makers.