ECN_203_3_Introduction_to_Markets

ECN_203_3_Introduction_to_Markets - Ch. 3 Introduction to...

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Ch. 3 – Introduction to Markets Market -- an arrangement where buyers and sellers exchange goods/services through voluntary transactions. -- Why do markets form? -- What are the methods of exchange? -- How do markets work?
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Why do markets form? Specialization -- each worker focuses on the production of a single good. Creates surpluses to be traded. Markets must form. Gains from trade -- the increased utility made possible by specialization and trade.
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Gains from Trade Absolute advantage -- the ability to produce more of a good than those one trades while using the same amount of resources. Comparative advantage -- the ability to produce a good at a lower opportunity cost than those one trades with. In either case, trade is beneficial.
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What are methods of exchange? Barter -- exchange of goods and services for others of similar value. Barter system flawed-- there’s a better method to trade. General equivalent -- one commodity, such as money, that is generally accepted for all other commodities.
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3 Roles of Money Medium of Exchange -- Money is exchanged for goods and services. ** Primary role.
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This note was uploaded on 02/17/2011 for the course ECN 203 taught by Professor Evensky during the Spring '07 term at Syracuse.

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ECN_203_3_Introduction_to_Markets - Ch. 3 Introduction to...

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