Chapter 4: Coordinating Smart Choices (Demand and Supply)
Market: The interactions of buyers and sellers
-Competition happens between buyers competing to buy the same product (example of
eBay). From the perspective of sellers, they compete to attract buyers .
-Cooperation happens during the interaction between buyer and seller, due to the
existence of voluntary trade.
Property Rights: Legally enforceable guarantees of ownership to physical, financial,
and intellectual property
-Prices are the outcome of a market process of competing bids (from buyers) and offers
-The best way to understand why prices settle at particular numbers is to look at what
happens in markets when prices have not settled.
Shortage or (Excess Demand): quantity demanded exceeds quantity supplied.
-Shortages create pressure for prices to rise
-Rising prices provides signals and incentives for businesses to increase quantity
supplied and for consumers to decrease quantity demanded eliminating the shortage.
Surplus or (excess supply): quantity supplied exceeds quantity demanded
-Surplus creates pressure for prices to fall
-Falling prices provide signals and incentives for businesses to decrease quantity
supplied and for consumers to increase quantity de