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Chapter 3 Note

Chapter 3 Note - 1 Chapter 3 Markets Demand and Supply and...

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Unformatted text preview: 1 Chapter 3 Markets, Demand and Supply, and the Price System 2 Markets Place or service that enables buyers and sellers to exchange goods and services 3 Markets and Exchange • Allocation Systems determine who gets goods and services and who does not. • A market is a place or service that enables buyers and sellers to exchange goods and services. • Barter is the exchange of goods and services directly, without the involvement of money. • Monetary exchanges involve exchanging money for goods and services. 2 4 Barter—considerations • Barter requires a double coincidence of wants— each party to the exchange must want what the other has to trade. T he situation that exists when A has what B wants and B has what A wants. – This is often difficult to achieve, and decreases the ease and efficiency of exchanges. – Therefore the transactions costs—the costs of making an exchange—are high in barter exchanges. – Money reduces the transactions costs because it does not require a double coincidence of wants. • In barter, the price of one good in terms of the other is called the relative price. It is the rate of exchange between the two goods. 5 Allocation Systems Who gets the goods and services? • Government determined • First come first served • Lottery System—random • The Market System—income earners buy goods and services 6 DEMAND DEMAND LAW OF DEMAND LAW OF DEMAND The quantity of a well The quantity of a well-defined good or defined good or service that people are willing and able to service that people are willing and able to purchase during a particular period of time purchase during a particular period of time decreases as the price of that good or decreases as the price of that good or service rises and increases as the price service rises and increases as the price falls, ceteris paribus falls, ceteris paribus 3 7 Law of Demand • Law of Demand: There is an inverse relationship between the price of a good and the quantity consumers are willing and able to purchase during a particular period of time. – As price of a good rises, consumers buy less. – Depicts the quantity-price relationship with all else assumed to be constant. • The determinants of demand are factors other than price that influence demand. We’ll discuss these soon. 8 Representations of Demand • Demand Schedule : A list of prices and corresponding quantities demanded of a particular good or service. • Demand Curve : A graph of the demand schedule with price on the vertical axis and quantity demanded on the horizontal axis....
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Chapter 3 Note - 1 Chapter 3 Markets Demand and Supply and...

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