ECO105Y1 Chapter Notes - Chapter 4: Economic Surplus, Market Clearing, Economic Equilibrium
Document Summary
Voluntary exchange b/w buyers and sellers happen only when both sides end up better off. Property rights: legally enforceable guarantees of ownership of physical, financial, and intellectual property. Government sets rules of the game, defining and enforcing property rights necessary for free and voluntary exchange. When there are shortages, competition between buyers drives prices up. When there are surpluses competition between sellers drives prices down. Rising prices provide signals and incentives for businesses to increase qs and for consumers to decrease qd, eliminating the shortage. Falling prices provide signals and incentives for businesses to decrease qs and for consumers to increase qd, eliminating the surplus. Balance qd and qs, coordinating smart choices of consumers and businesses. Market clearing price: the price that equalizes qd and qs. Equilibrium price: the price that balances forces of competition and cooperation, there is no tendency for change.
