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What where on the ppc should the economy be how are

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Unformatted text preview: economy be? How are the goods to be produced? How » How can resources be used efficiently? For whom are the goods to be For produced? Markets provide answers to these Markets questions Elements of a Market Economy Elements Freely determined prices Freely Property rights and incentives Property Competitive markets Competitive A role for government role Elements of a Market Economy Elements Freely determined prices Freely » Prices are set by the market forces (more on this in the second part of the lecture) » Prices provide “signals” about the relative scarcity of goods and ensure that right quantities of each of good are produced » In non-market systems prices are set by the government: shortages and other problems Elements of a Market Economy Elements Property rights and incentives Property » Property rights are essential for efficient functioning of the markets » Weak property rights lead to breakdown of production and exchange by reducing incentives for investment » Would you build a factory if you knew it could be taken over by someone with more political power and resources? » Weak property rights is one of the main causes of poverty and slow economic growth in developing countries Elements of a Market Economy Elements Competitive markets Competitive » Many buyers and sellers » Free entry and fair competition » Monopoly: high price and low quantity leads to inefficiency (Chapter 10) » Regulation: Australian Competition and Consumer Commission (ACCC) Elements of a Market Economy Elements A Role of Government Role » To correct “market failures” » Externalities (pollution) » Public Goods (national defence) » Natural Monopoly: markets in which only one firm can survive (electricity transmission) The Supply and The Demand Model Lecture 2 Part 2 Supply and Demand Supply The most important model in The economics Question: how are prices and Question: quantities determined in a market Equilibrium - a situation in which Equilibrium market participants do not want to change their behaviour Applications of D&S model Applications Analysing effects of government Analysing policies Example: First Home Owners Boost Example: » First home buyers received $14,000 when purchasing a home in 2008-2009 » Purpose: provide financial support for the first time home buyers » Question: who will benefit from thi...
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