Econ 105 Lecture 4 notes Jan 17th
Types of economies:
-command = one person (or firm) decides who gets what. (Al tells betty to make X
number of peanut butter and Y number of bread and he takes it all)
-bargaining = two or more parties meet to try and achieve a division of the surplus of the
goods, if they can't agree on anything, they have the option of going back to autarky.
-market = a firm or person sets a price that cannot be changed.
****** see notebook for graph + problem***** ( 1 )
Things to notice:
1) Prices determine opportunity costs.
2) Only relative prices matter.
3) Prices can encourage producers to produce according to their comparative advantage.
^ Not on the exam.
Chapter 4: The Market Forces of Supply and Demand
-Markets = A market is a group of buyers and sellers for a particular good or service.
-Competitive market = A competitive market is one in which there are so many buyers
and sellers that any one individual has negligible influence.
-Perfectly competitive market = one market in which:
1) The goods offered for sale are all exactly the same
2) Everyone is a price taker. That is they assume they can buy or
sell as much as they want without affecting the price.
-Competitive = accurate description of some real markets
-Perfectly Competitive = model of a competitive market
-A Monopoly = a market in which there is only one seller, called the monopolist.
-A Monopsony = a market with only one buyer ( the monopsonist)
-Actual markets lie somewhere in between the two theoretical extremes.
-Perfect competition = minimal market power ; Monopoly = maximum market power.
Model considering the behavior of price taking buyers ( demand ) then the behavior of
price taking sellers ( supply ).
-Quantity demanded is the amount of a particular good that consumers are willing
and able to purchase.
- things that affect