blanchard_ch03

There are also markets for money such as japanese yen

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Unformatted text preview: are also markets for money such as Japanese yen and for financial securities such as Yahoo! stock. Only our imagination limits what can be traded in markets. Some markets are physical places where buyers and sellers meet and where an auctioneer or a broker helps to determine the prices. Examples of this type of market are the New York Stock Exchange and the wholesale fish, meat, and produce markets. Some markets are groups of people spread around the world who never meet and know little about each other but are connected through the Internet or by telephone and fax. Examples are the e-commerce markets and the currency markets. But most markets are unorganized collections of buyers and sellers. You do most of your trading in this type of market. An example is the market for basketball shoes. The buyers in this $3 billion-a-year market are the 45 million Americans who play basketball (or who want to make a fashion statement). The sellers are the tens of thousands of retail sports equipment and footwear stores. Each buyer can visit several different stores, and each seller knows that the buyer has a choice of stores. Markets vary in the intensity of competition that buyers and sellers face. In this chapter, we’re going to study a competitive market—a market that has many buyers and many sellers, so no single buyer or seller can influence the price. Producers offer items for sale only if the price is high enough to cover their opportunity cost. And consumers respond to changing opportunity cost by seeking cheaper alternatives to expensive items. We are going to study how people respond to prices and the forces that determine prices. But to pursue these tasks, we need to understand the relationship between a price and an opportunity cost. In everyday life, the price of an object is the number of dollars that must be given up in exchange for it. Economists refer to this price as the money price. The opportunity cost of an action is the highest-valued alternative forgone....
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