xid-5178676_2 - T ues., Sept. 6 Markets cont 1. Summary of...

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ues., Sept. 6 – Markets con’t 1. Summary of market and nonmarket goods (from last week): Rival Excludable Private goods yes yes Natural monopoly goods no yes Common property (open access) yes no Public goods no no 2. Markets - Supply and demand; equilibrium. Markets determine: Price at which a product (a good, service, financial asset, factor of production, commodity, etc) is sold; Amount (quantity) produced Quantity produced depends on cost - opportunity cost of alternative use of factors of production Supply & Demand - not amounts or quantities, but relationships between prices and quantities. Law of Demand : Price and quantity demanded (Qd) are inversely (or negatively) related - as price rises, quantity demanded falls. Demand doesn't mean "I want," or "I would like." It means I want the good, have the income to pay for it, and would buy it at a specific price. . Law of Supply : Price and quantity supplied (Qs) are directly (or positively) related - as price rises, quantity supplied rises. Equilibrium: where quantity demanded = quantity supplied; equilibrium price (Pe) and quantity (Qe). If price is below equilibrium, Qd > Qs, shortage in the market; price will rise towards equilibrium. 1
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xid-5178676_2 - T ues., Sept. 6 Markets cont 1. Summary of...

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