lnc3prime - Notes 4, More on demand and supply Markets...

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Notes 4’, More on demand and supply Markets Market: a meeting of a buyer and a seller to arrange price and quantity and make a trade. Markets are a really big deal in economics. “Market economics” is the name given to the way of thinking that the best way to organize economic activity, that is, producing and consuming goods and services, is to assign property rights to all resources to private individuals (as opposed to the government) and let those self-interested individuals work out on their own, or in free cooperation with other people (i.e., business firms) how to put those resources to the best use. Market economics requires that the people who own these resources be able to communicate their wants to each other and to get together to exchange their resources with each other. That’s what markets do. What does a market look like? It’s pretty variable. Say you travel to Mexico and go to an open-air market in the middle of town, with vendors hawking their wares from little tented kiosks, and you stop at a stall where some guy is selling wool scarves. He tells you how wonderful his scarves are, blah, blah, blah, and that the price is $50. You offer him $10. He pretends to be offended. You walk away. He comes after you. You eventually end up paying $20 for a scarf. Is this a market? Yes. A buyer and a seller meet, arrange a price and a quantity, and make a trade. Now, as I’m writing this I’ve just gone to eBay and bought two bottles of dog tapeworm remover pills for my dear little Lucy. A few mouse clicks and the pills are on their way. Is this a market? Yes. The buyer (me) contacted the seller (some guy in Harwinton, Connecticut, wherever that is) via eBay. (“meeting of a buyer and a seller “) I looked at his Buy-It-Now price, thought it was ok (less than half the pet store price), clicked the button, and entered 2 in the quantity box. ( “arrange price and quantity”) He’ll send me the stuff, I’m pretty sure, since he has all positive ratings, and I’ve sent him the money via PayPal. (“make a trade”) (Note: the pills, as described, arrived in four days.) I want to emphasize the importance of property rights in all this. The tapeworm pill seller was willing to buy the pills from wherever he got them because he was confident that he would be able to keep them or sell them as he wished, and that they would not be taken away from him in the meantime. He was willing to sell them to me because of his confidence that PayPal would deliver the money to him. And I’m willing to pay for them, confident that when I get them, I can use them as I see fit. In a nation without strong property rights, say, Cuba, the seller would have to worry that the government might confiscate his inventory arbitrarily. If so, he might be better off not buying the pills in the first place, and the trade would never take place. Markets can’t work unless participants are secure in their rights of ownership of the goods and services they trade. That’s
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lnc3prime - Notes 4, More on demand and supply Markets...

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