Chapter 2 A.What is market? B.Trade,money and capital C.The economic role of government 2023/7117 Economics
1 2023/7/17 Economics Chapter 2 A.What is market? B.Trade,money and capital C.The economic role of government
A.What is market? A market is mechanism by which buyers and sellers interact to determine the prices and quantity of a good and service.(The invisible hand) Prices coordinate the decision of producers and consumers in a market.Higher prices tend to reduce consumer purchases and encourage production,Lower prices encorage consumption and discourage production.Prices are the balance wheel of the market mechanism. ■A market equilibrium(市场均衡)of supply and demand represents a balance among all the different buyers and sellers. 2 2023717 Economics
2 2023/7/17 Economics A.What is market? ◼ A market is mechanism by which buyers and sellers interact to determine the prices and quantity of a good and service.(The invisible hand) ◼ Prices coordinate the decision of producers and consumers in a market. Higher prices tend to reduce consumer purchases and encourage production,Lower prices encorage consumption and discourage production.Prices are the balance wheel of the market mechanism. ◼ A market equilibrium （市场均衡）of supply and demand represents a balance among all the different buyers and sellers
Prices on product Demand markets Supply What Households How Businesses For whom Supply Prices on factor Demand markets The circular flow of a market economy 3 2023/7117 Economics
3 2023/7/17 Economics Prices on product markets Prices on factor markets Households Businesses What How For whom Demand Demand Supply Supply The circular flow of a market economy
B.Trade,money,and capital Trade,specialization,and division of labor. Money is a lubricant that facilitates exchange. Capital is a produced factor,a durable input which is itself an output of the economy.includes buildings,machinery,equipment,and so on Specialization,trade,money,and capital are closely interrelated. 4 2023/7117 Economics
4 2023/7/17 Economics B.Trade,money,and capital ◼ Trade,specialization,and division of labor. ◼ Money is a lubricant that facilitates exchange. ◼ Capital is a produced factor,a durable input which is itself an output of the economy.includes buildings,machinery,equipment,and so on. －Specialization,trade,money,and capital are closely interrelated
C.The economic role of government ■Failure of market --Inefficiency:imperfect competition or monopoly,externalities,public goods,asymmetry of information. --Inequality:unacceptable inequalities of income and wealth. --Macroeconomic problems:high unemployment,inflation or deflation,business cycles Three main economic functions of governments: --Increasing efficiency (encourage competition,intervene in market) --promoting equity.(redistribution income,progressive taxation,transfer payments) --fostering macroeconomic stability and growth.(monetary policies,fiscal policies,invest in education,raise national savings) 5 2023717 Economics
5 2023/7/17 Economics C.The economic role of government ◼ Failure of market --Inefficiency: imperfect competition or monopoly,externalities,public goods, asymmetry of information. --Inequality: unacceptable inequalities of income and wealth. --Macroeconomic problems: high unemployment,inflation or deflation,business cycles ◼ Three main economic functions of governments: --Increasing efficiency (encourage competition,intervene in market) --promoting equity. (redistribution income,progressive taxation,transfer payments) --fostering macroeconomic stability and growth. (monetary policies,fiscal policies,invest in education,raise national savings)