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Lecture 3

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University of Toronto Scarborough
Dan Silver

-1SOCB42 September 26 th Why money exists: 1. Limits of barter 2. Money is whatever everybody wants 3. A) lasts b) divisible 4. Use value VS exchange value [money tends to increase amount we exchange/trade. Creates probability of market price going to be different than the use value] Natural price: however much it costs to bring something to the market to sell [wages, rents, normal profit] Market price: how much you actually sell it for. When its different from the natural price, people tend to adjust their behavior to make them inline with each other Law of Supply: Law of demand: there is an inverse/direct relationship between the price of a good, and the amount of it buyers are willing to purchase. Higher the price, the more willing a seller will be to sell it. Effectual demand: not only do you want something, but you have the money to pay for it Demand is higher than supply, then the market price is going to rise Market order to work well: 1) liberty of motion: 2) liberty to change jobs 3) good information Wont work: 1. Concealing high profits 2. Trade secrets 3. Scarcity [xmas trees in certain areas, it will be hard to many people to go in the business] 4. Monopolies [large companies will make the profit, little companies will suffer] 5. Certification Different ways in which the produce of labour can be used: Rent, profit, wages Original s
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