Lecture 5 - Announcements HW 2 is due on Monday. It has 2...

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Announcements HW 2 is due on Monday. It has 2 graded parts. Together they are counted as one homework. Those who contacted me about repeating the course should have had their accounts marked as paid. Please let me know if not. Register your iClicker if you have not. I will do the grades today (hopefully). I will send out an e-mail if I do. 1
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Chapter 4 Demand, Supply, and Markets 2
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Price Theory In a free market system, the basic economic questions are answered without the help of a central government plan or directives. This is what the “free” in free market means—the system is left to operate on its own, with no outside interference. Individuals pursuing their own self-interest will go into business and produce the products and services that people want. Others will decide whether to acquire skills; whether to work; and whether to buy, sell, invest, or save the income that they earn. 3
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Market economy: setting the scene For a market economy to work, four necessary conditions must be met: 1. Working for wages must be well established. 2. There must be a market for goods and services. 3. People must be able to own private property. Three entitlements to private property: The right to consume your property and use it so long as you don’t harm others The right to transfer property to whomever you please The right to exclude anyone from using your property or interfering with it. 4. The economy must allow economic winners and losers. 4
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Model of Supply and Demand There are three elements to our model: 1.buyers / consumers / customers 2.sellers / producers / firms 3.the marketplace where consumers and producers interact Input markets Output markets 5
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Market players 2. Firms Organizations that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy. (see ch. 3 for types of firms) entrepreneur A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. Later we will add government and the 1. Households The consuming units in an economy. 6
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MARKETS: THE CIRCULAR FLOW product or output markets The markets in which goods and services are exchanged. input or factor markets
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Lecture 5 - Announcements HW 2 is due on Monday. It has 2...

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