ECON 1 Lecture Notes - Lecture 7: Social Philosophy

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The upper arena of exchange is called the product market, in which the households purchase the goods and services from the firms: the self-regulating nature of the marketplace. Adam smith, a scottish social philosopher, observed that a market was composed of countless individual transactions. In each transaction, the buyer and the seller consider only their self-interest, or their own personal gain. In other words, self-interest is the motivating force in the free market. Consumers, or households, in pursuit of their self-interest, have the incentive, or motivation for products that they a) like and are b) inexpensive. Firms will compete to provide products that will meet both of those needs. i. e. consumer favors pinks shirts. Firm a sells a pink shirt for $ 10. 00. Firm b sells a grey shirt for $ 10. 00. Firm c sells a pink shirt for $ 5. 00. A: responds to consumer preferences, but is at the mercy of c"s prices.

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