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chap 3 notes.docx

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Department
Economics
Course
ECON 101
Professor
All Professors
Semester
Spring

Description
CH 3 SUPPLY AND DEMANDWHAT HOW AND FOR WHOM CENTRAL PLANNING VS THE MARKET1Communist Countriescentralized decisionmakingoAn individualsmall group decides on behalf of everyone else establish production targets develop master plan on how to achieve targets incl who produces what and set up guidelines for distribution and use of goods and services producedoEg Soviet Union Cuba North Korea China2Capitalistmarket economiespeople are free to start own businesses shut them down or sell themoDistribution of goods and services is determined by individual preferences and purchasing power which usually come from incomeopure economiesproduction and distribution decisions are left to individuals interacting in marketsoMixed economiesgoods and services are allocated by a combination of free markets regulation and other forms of collective controlMARKETS AND PRICESMarketthe context in which potential buyers and sellers of a good or service can negotiate exchangesoeg market for product x on a given day at a given place is just the set of people potentially able to buy or sell product x at that time and locationcost of production and value of product to consumer both determine the market price for a good and amount of it that is bought and soldoDemand and supplyFree marketmarket not controlled by government THE SUPPLY CURVEsupply curvea curve or schedule showing the total quantity of a good of uniform quality that sellers want to sell at each price during a particular period of time provided that all other things are held constantorefers to quantity of good sellers are willing to supply at specific pricesquantity suppliedthe total amount of a good of uniform quality that all sellers are willing to produce and sell at a single specific price during a particular period of timeorefers to single specific priceouniform qualityit has specific given characteristicssupply curve generally slopes upwardsellers offer more units of sale at higher pricesodue to differences in peoples opportunity costsothe higher the price the more people find it worthwhile to supply a goodeg when price of product X is low only those people with low opportunity costs will sellwhen price increases additional sellers with higher opportunity costs will also sellresult of principle of increasing opportunity cost as production of product X increases we first turn to suppliers whose opportunity costs are lowest and only then to others with higher onesceteris paribusall things other than price and quantity supplied are held constant
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