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Economics_Ch04 - 04(086-109 EMC Chap 04 4:35 PM CHAPTER 4...

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86 CHAPTER 4 Demand CHAPTER 5 Supply CHAPTER 6 Price: Supply and Demand Together
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Start with the idea that you can't repeal the laws of economics. Even if they are inconvenient. —L arry S ummers 87
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Why It Matters C ertain people and institutions play impor- tant roles in your life. For example, your parents, teachers, and friends are impor- tant. Government is an institution that also plays an important part in your life. It determines such things as when you can get a driver’s license, the amount of taxes you must pay, and when you will be able to vote. Markets also have a major impact on your life. A mar- ket is any place where people come together to buy and sell goods or services. Markets determine what prices you pay for computers, cars, television sets, books, and clothes. Markets also determine what peo- ple earn as teachers, truck drivers, television and movie stars, baseball players, and nurses. How much money you earn in the future will depend on markets. If you are interested in the prices you pay for the goods and services you buy, or in why some people earn higher salaries than others, then you will be interested in learning how markets work. The first step is to learn about demand, the subject of this chapter. 88 Shopping for a more pow- erful computer and the lat- est software program can be fun. Whether or not these shoppers decide to make a purchase will depend on their willing- ness and ability to buy, conditions you will learn more about in this chapter.
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The following events occurred one day in June. 9:03 A.M. Sam is a student at a technical college in New York City. He is currently working on one of the computers in the school library. He’s not doing any research right now; instead, he’s online checking the prices of various stocks. He recently inherited some money and is thinking of investing it in the stock market. He checks the share price of various stocks: Georgia Pacific, General Motors, Microsoft, and Dell. He is thinking about buying 100 shares of Dell, current price $39.35. He is about to place his order online with his online broker, when he has second thoughts. A friend of his told him that the price of tech stocks, including Dell, would probably be going down this week. Maybe, Sam thinks, I should wait until later to buy this stock. • What does the (expected) future price of a share of stock have to do with buying stock today? 10:41 A.M. A U.S. senator is in his office talking with his staff. He is concerned about teenage smoking in America. He wonders whether he, as a U.S. senator, can do anything to reduce the amount of teenage smoking. One member of his staff says that the federal government should increase the tax on a pack of cigarettes. “That way,” he says, “a lot of these kids will stop smoking.” “How so?” asks the senator. “The tax will push up the overall price of cigarettes,” the staffer says, “and that will lead to teens buying fewer cigarettes.” Another staffer enters the conversation. “I am not so sure many teens will stop smoking,” she says. “If they are
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Economics_Ch04 - 04(086-109 EMC Chap 04 4:35 PM CHAPTER 4...

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