Chapter 3 - Economics 101 Chapter 3: Supply and Demand: An...

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Economics 101 Chapter 3: Supply and Demand: An Introduction -Universal Questions -All economies must answer the following questions -What should be produced? -How should it be produced? -For whom will be produced? -Two basic economic systems -Central planning -Markets -Central Planning -Agrarian society -Former Soviet Union -Cuba, North Korea -China -Bureaucracy -A small number of individuals address these concerns: -Establish production targets for factories and farms -Plan how to achieve the goals -Distribute the goods and services produced -Market Forces -Market Systems -capitalistic, free enterprise economies -Outside of the government sector, individual households are both consumers and producers -Ultimately household own everything and make decisions bed on their own self-interest -The markets provide opportunities for individuals to decide what is best for themselves -The Three Basic Economic Questions -What goods and services to produce: maximize income and profit -How to produce: minimum cost -Who gets what is decided by purchasing power (income and wealth) and individual preferences -Market Coordination -How do consumers get the goods and services they want in the right quantities and qualities? -Most goods and services are allocated though market forces of supply and demand -Why do some goods and services have shortages or surpluses while others do not? -Sometimes markets do not work very well; sometimes government may regulate the markets because they are not allocating goods and services efficiently -The Market System -In the Private Sector, individuals and firms interact in markets for goods and services, within a framework of laws, regulations and customs -Individuals as Consumers decide primarily: -Which products to buy -Individuals as Producers decided primarily: -What, how and how much to produce -What prices to charge -Market Coordination -Most goods and services are allocated by markets, which often work remarkably well in matching what consumers want with what firms produce -Economics tries to explain why -But markets do not always work well -Economics tries to explain why not -Markets need a framework of Laws, Regulations and Customs to function effectively
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-eg. Property rights need be defined and enforced if transactions are to occur; markets are more efficient when consumers can rely on accurate eights, measures and ads -So economists also try to analyze how best to organize markets -Prices -Why are some goods cheap and others expensive -Through most of history, nobody really understood: the water-diamond paradox! -Most thought prices were different because of differences in the costs of production -Others thought prices were different because of differences in the values to the buyers from use and consumption -Today we know the answer: Both Are Important! -Markets
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This note was uploaded on 01/08/2009 for the course ECON 101 taught by Professor Lemche during the Summer '05 term at The University of British Columbia.

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Chapter 3 - Economics 101 Chapter 3: Supply and Demand: An...

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