Chapter 3 Supply and Demand Econ 104 Maximizing Behavior 1. Consumers - maximize the utility (satisfaction) we get from our available incomes 2. Businesses - maximum profits 3. The public sector - maximizing goals 4. Government - maximum social needs 5. The basic goals of utility maximization, profit maximization, and welfare maximization explain most market activity Specialization and Exchange 1.Our economic interactions with others are thus necessitated by two constraints: a.Our absolute inabilityas individuals to produce all the things we need ordesireb.The limited amountof time, energy, and resources we have for producing those things we could make for ourselvesInternational Trade1.Both nations end up consuming more products than they could if they had to produce everything themselves2.Global marketsare so vital to economic prosperity
The Circular Flow 1. Business firms supply goods and services to product markets (A) and purchase factors of production in factor markets (B) 2. Individual consumers supply factors of production such as their own labor (C) and purchase final goods and services (D) Federal, state, and local governments acquire resources in factor markets (E) and provide services to both consumers and business (F) International participants also take part by supplying imports, purchasing exports (G), and buying and selling factors of production (H) The Two Markets 1. Factor markets - Any place where factors of production (land, labor, capital) are bought and sold 2. Product markets - purchasing goods and services those firms have produced a. Foreigners also participate in the product market by supplying goods and services (imports) to the United States and buying some of our output(exports) 3. The consumer is the final recipient of all goods and services produced Locating Markets 1. Market - a place or situation where an economic exchange occurs—where a buyer and seller interact 2. Exchange - take place on the street, in a taxicab, over the phone, by mail, or in cyberspace 3. A market exists wherever and whenever an exchange takes place
Dollars and Exchange 1. Consumers exchange dollars for goods and services in product markets 2. Exchange factor of production (labor) for income - factor markets a. real resources b. dollars 3. Every market transaction involves an exchange of dollars for goods (product markets) or resources (factor markets). Supply and Demand 1. The seller is on the supply side of the market 2. The buyer is on the demand side 3. Business firms may supply goods and services in product markets at the same time they’re demanding factors of production in factor markets Demand 1. The ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus Supply 1. The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus Individual Demand 1. A demand exists only if someone is willing and able to pay for the good Demand schedule 1.
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