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

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

View Full Document Right Arrow Icon
Chapter 3 – Free Markets at Work 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.
Background image of page 1

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

View Full DocumentRight 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”
Background 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.
Background image of page 3

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

View Full DocumentRight 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.
Background 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.
Background image of page 5

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

View Full DocumentRight Arrow Icon
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 ).
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/16/2011 for the course ECON 203/101 taught by Professor Na during the Fall '09 term at University of North Carolina School of the Arts.

Page1 / 28

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

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online