ECO3041 - Ch 3 Notes

ECO3041 - Ch 3 Notes - Chapter 3 Notes Chapter 3 I Supply...

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Chapter 3 Notes Chapter 3 Supply and Demand I. Market participants There are approximately 300 million individuals in the USA. There are approximately 20 million firms or businesses in the USA. There are thousands of government agencies in the USA government. Goals For individuals, it is to maximize their own utilities. For firms, it is to maximize stockholder’s wealth. For the Government, is to maximize social wealth. (Please do not think of this as welfare, it is not) Constrains For firms and government, their constraint is factors of production For individuals the constraint is “money.” Choices Choices have to be made among all available products. Choices are made at the margins using opportunity cost . Specialization and exchange Market is any place where goods are brought and sold. We can maximize by specializing on an individual trade. When we specialize, we can produce one product more efficient and trade our services for other products (or money). Our economic interactions with others are thus necessitated by two constraints: Our inability to produce all things we desire The limited amount of time, energy and resources 1 | P a g e
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Chapter 3 Notes II. Market interaction The book states that there are four market participants. However we are only interested in three of them. 1 They are: 1. Consumers – households 2. Business firms – firms 3. Government Circular flow model – A model of the economy that shows the circular flow of expenditures and income that results from decision makers’ choices and the way those Households and Firms Households – Individuals or group of people living together as decision-making units. This group owns the factors of production, and it chooses the quantity of resources it is going to provide the firms and the quantity of goods and services (G & S) it is going to buy from the firms. Firms They choose the quantity of factors of production to hire and the quantity of G & S to produce. Markets How are the choices from household and from firms coordinated ? They are coordinated through the market place. Market – Any arrangement that brings buyers and sellers together and enables them to get information and do business with each other. We have two markets and they are as followed: 1. Products Markets (AKA Goods Markets) – It’s a market in which G & S are bought and sold. 2. Factor Markets – It’s a market in which factors of production are bought and sold. 1 I do not include foreigners. Your book does not provide an accurate enough portrayal of reality and the interactions within the circular flow model.
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This note was uploaded on 01/22/2012 for the course ECO 3041 taught by Professor Dacal during the Fall '11 term at FIU.

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ECO3041 - Ch 3 Notes - Chapter 3 Notes Chapter 3 I Supply...

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