Making Choices in a Free Market System Day 1

Class BA-1310

What is a Market

A Market is a means for buyers and sellers to exchange for goods and services

What is a Labor Market

A market where Employees and Employers can connect

What is a Stock Market

Connects publicity traded companies with investors, and buyers/sellers of financial assets more broadly.

What separates a Labor Market and a Stock Market

The Labor Market makes connections for employed seeking jobs, while the Stock Market connects companies with investors to buy or sell finacial assets

What is a Free-Market System?

a way of organizing economic activity, so all businesses are owned and operated by individuals

What’s unique about the Free-Market System?

Competition ins encouraged by market forces while government regulates to put anti-competitive behavior

What are the features of a Free-Market System?

Rights to have private ownership of property, to own and keep profits, to make decisions on how their business should run, and the freedom for individuals to choose where to live, work, and what to purchase.

What do Free Market systems require (1)

Regulation and oversight to ensure that prices are based on supply and demand

What do Free Market systems require (2)

Contract enforcement so prices are not distorted in anticipation of fraud and abuse

Ingredients of a good choice (1)

Opportunity cost: What must be given up in order to acquire or do something else

Ingredients of a good choice (2)

Marginal Analysis: The process of comparing additional benefits of an activity with the additional costs

Ingredients of a good choice (3)

Short vs Long run thinking

What are incentives

the attractiveness of one option over another by adjusting expected gains or losses.

What is Efficiency?

How effectively available resources are used

What is opportunity cost

the value of what you must give up in order to get something.

What are explicit costs?

Things that come right out of our wallet or bank accounts

What are implecit costs?

Things that do not come directly out of our wallets but are consequences of the actions we take.

What is the invisible hand?

The natural outcome of people everywhere acting in their own self-interest to improve their own lives

What is a production possibility frontier

A line or curve that shows all possible combinations of two outputs that can be produced using all available resources

If a producer produces inside th PPF, then?

Producing more of one good does not require giving up some of the other good

If the producer is producing on PPF, then?

Producing more of one good requires giving up some of the other good.

If PPF line shifts to the right/Left its because?

There was in increase or decrease in available resources

If there was a rotation of PPF its because?

There was an improvement in technology

What is specialization?

The concept of producers only focusing on one product

What are the four characteristics of competitive markets

1. Participants are price-takers'

2. Standardized good

3. Full information

4. No transaction costs

What is law of demand

The law that states that lower the price, the higher the demand, all other things equal

What is demand schedule

displays quantities demanded at various prices.

If demand curve shifts to right?

When demand increases, caused by increase of income, increase of a substitute, and etc

If demand curve shifts to the left

Less people are willing to buy less of the good, caused by increase price of complementary good, and lower expectations

What is law of supply?

The law states that higher the price, the higher quantity supplied, all other things equal

If supply curve shifts to right its because?

producers are willing to supply more, ex: improvement of technology

If supply curve shifts to left its because?

Producers are less willing to supply less, ex: price of increases

What is market equilibrium?

The point where supply and demand curves intersect

What if market is not equal

then quantity demanded is not equal to quantity supplied.

What is a surplus

when excess supply occurs and there is a surplus of good or service

what is shortage

when excess demand occurs and there is a shortage of good or service

Where is surplus on a graph?

Upper triangle