ECN 203 (3), Free Markets at Work - Chapter 3 Free Markets...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 3 – Free Markets at Work h ° ° ° Free markets – how choices of consumers and firms become trade and transactions. Modeling behavior in a free market: Demand and Supply. What a free market does effectively, and what it can’t do. How free markets can get messed up. Everybody does what best for him—invisible hand.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Essentials of a Free Market Consumers -- choosing a variety of goods and services based upon maximizing utility subject to the budget constraint. Firms -- specialization into producing different types of goods, based upon maximizing profits. A high degree of competition among different firms producing the same good, with no single firm having an advantage over another firm in the industry ( Perfect Competition ). no one firm can influence the market.make the decision individually. We hardly mention government here. government-- “referee”
Image of page 2
More Essentials of a Free Market A price for a good or service which is known to buyers and sellers. Mutually Beneficial Exchange – trade or purchasing something takes place only if it serves to benefit both the buyers and the sellers . voluntary for both sides. Applications: buying goods, hiring labor, world trade.
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The Role of Money in Free Markets Money – primary role is as a Facilitator of Trade , to serve as a lubricant ( h ° °) to make trade take place as smoothly as possible. “Engine Oil” to the engine of trade in free markets.
Image of page 4
Specific Roles of Money as a Facilitator of Trade Medium of Exchange -- Money is exchanged for goods and services. Standard of Value -- Value is measured in dollars (the “price tag”). Store of Value -- People can use money when they wish, present versus future.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Modeling the Free Market: Demand and Supply Every good or service (e.g. coffee) has consumers who wish to buy it ( Demand ), along with firms who wish to sell it ( Supply ).
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern