Interconnection between buyers and sellers (medium-prices)
selfish (want maximum they can get)
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
ex ante demand: quantity consumers wish to demand at
ex post demand: quantity actually succeed in buying
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:
varies from product to product
new pair of shoes to millionaire doesn't give much utility
Ceteris paribus, more will be demanded at lower price.
TR = PxQ, increase is shift, extension is
Defn. quantity of commodity that suppliers
wish to supply at a particular time.
of factors of production
price of other commodities (will substitute)
Partial equilibrium- only in one market
General equilibrium- belongs to macroeconomics (discovered
Competition + A. Smith invisible hand lead
to optimum allocation of resources.
Problems of invisible hand and equilibrium:
The uneven distribution of income.
Competition- invisible hand works only free