ECO105Y1 Lecture Notes - Lecture 6: Normal Good, Comparative Statics, Market Power
Document Summary
Cooperation and voluntary exchange between buyers and sellers. Property rights: legally enforceable guarantees of ownership of physical, financial and intellectual property. Government sets the rules of the game, defining and enforcing property rights necessary for free and voluntary. * when there are shortages, competition between buyers drives price up * * when there are surpluses, competition between sellers drives the prices down * Shortages or excess demand: quantity demanded exceeds quantity supplied. Rising prices provide signals and incentives for businesses to increase quantity supplied and for consumers to decrease quantity demanded, eliminating the shortage. Frustrated sellers market price is too high. Surplus of excess supply: quantity supplied exceeds quantity demanded. Surplus create pressure for pressure for prices to fall. Falling prices provide signals and incentives for businesses to decrease quantity supplied and for consumers to increase quantity demanded, eliminating the surplus. * market clearing prices coordinate the smart choices of consumers and businesses, balancing quantity demanded and quantity supplied *
