P.5. Markets, p.58.
I. Macro
Economics- looks at:
General forces that
work
Totals of
unemployment
Inflation
II. Micro
economics- looks at:
Individual decision
makers
Markets-
Interconnection between buyers and sellers (medium-prices)
III. Assumptions:
People are
selfish (want maximum they can get)
People are
competitive
People dislike
work
Price system- vital economic decisions taken through
medium of prices.
People want productsprice
risesbusinesses will produce itwill
employ labour & resources.
Prices -- important as connecting
or communicating mechanism between
consumers and producers in consumer
goods and factor markets
(fig.5.1 p.60).
IV. Demand
Effective demand: price
quantity
time
ex ante demand: quantity consumers wish to demand at
certain price
ex post demand: quantity actually succeed in buying
Utility.
The satisfaction that consumers derive from
purchasing goods and services.
Law of diminishing
marginal utility: other things being constant, as
more and more units of a commodity are consumed the additional satisfaction, or
utility derived from the consumption of each successive unit will decrease.
Factors affecting MU:
1. Time-
varies from product to product
2. Income-
new pair of shoes to millionaire doesn't give much utility
3. Addiction
Ceteris paribus, more will be demanded at lower price.
TR = PxQ, increase is shift, extension is
movement along.
VI. Supply
Defn. quantity of commodity that suppliers
wish to supply at a particular time.
1. Price
2. Price
of factors of production
3. The
price of other commodities (will substitute)
4. Technology
5. Tastes
of producers
6. Exogenous
factors (weather)
Partial equilibrium- only in one market
General equilibrium- belongs to macroeconomics (discovered
by Walras)
Competition + A. Smith invisible hand lead
to optimum allocation of resources.
Problems of invisible hand and equilibrium:
The uneven distribution of income.
Dangerous products
Competition- invisible hand works only free
market.
