ch 7 - PartIIICostsofProductionandtheSupplyofGoods Where...

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Part III    Costs of Production and the Supply of Goods Where are we going in this part of the course? In the previous chapters, we learned how economists interpret consumer choices and the Demand curve. In the next few chapters, we look at what determines producers choices and the Supply of goods on a market. While they are not the only producers, businesses are the entities that normally produce for sale in a market, so we focus on businesses. In fact, economists call this area of economics the Theory of the Firm. Chapter 7 Costs of production in the short run Chapter 8 Supply in a competitve market in the Short Run Chapter 9 Interaction of Supply and Demand in the Short Run
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Chapter 7 Costs of production in the short run Focus on Firm Production for the Market As we discussed in the introduction, there are many sources of economic production in a modern economy such as that in the U.S.: families, charitable institutions, non-profit organizations and governments as well as businesses. There are areas of economics that study the economic behavior of each of these types of organizations. For example, one field looks at the ways in which opportunity costs affect marriage rates, the selection of partners, and family based production. The emphasis in economics, however, has always been on businesses production for the market economy. For businesses, it is easier to ascribe a goal, easier to observe their behavior and because they are responsible for the majority of production of goods in the economy. Firms, as businesses are called in economics, have a very particular function in an economic system. Their job is to initiate and organize production and make choices about what, how and how much to produce. As we will see, they make these based on market interactions with consumers. Just like consumers, producers will respond to price changes. Thus price will become an incentiv that coordinates the two sides of the market. Legal Forms of Business There is considerable variation in the types of businesses that may be formed across the world. In the U.S., the states are primarily responsible for creating the legal requirements related to the form of a business so that the forms may vary somewhat even across states. There are, however, three common types of legal forms in which a business may be organized in most countries. The legal interpretation given below applies to most Northern American and European countries: o Sole proprietorship. The business is owned by a single individual and, while it may be licensed, it does not have any independent status of its own. (You may have seen the phrase “doing business as”?) The income, assets and liabilities of the business are considered to be the income, assets and liabilities of the individual.
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This note was uploaded on 07/17/2011 for the course ECON 102 taught by Professor Jarv during the Summer '09 term at Rio Hondo College.

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ch 7 - PartIIICostsofProductionandtheSupplyofGoods Where...

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