Differences in Earningsin the U.S. Today The typical physician earns about $200,000a year. The typical police officer earns about$50,000 a year. The typical farm worker earns about$20,000 a year

Types of Imperfectly Competitive Markets Monopolistic Competition – Many firms selling products that are similar but not identical. Oligopoly – Only a few sellers, each offering a similar or identical product to the others

International Trade What determines whether a countryimports or exports a good? Who gains and who loses from free tradeamong countries? What are the arguments that people usedto advocate trade restrictions?

Interdependence and Trade Consider your typical day: – You wake up to a alarm clock made in Wenzhou – You put on some clothes made of cotton grown in Xinjiang and sewn in factories in Fujian Province

Elasticity… … is a measure of how much buyers and sellers respond to changes in market conditions … allows us to analyze supply and demand with greater precision

Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? Market equilibrium reflects the way markets allocate scarce resources. Whether the market allocation is desirable is determined by welfare economics

Importance of Supply-Demand Analysis A little knowledge goes a long way: Price Control, Taxation and other policies. Market welfare: Normative Analysis International Trade Externality (Market Failure) Market Power (Market Failure) Other markets: Financial Market, Labor Market. Macroeconomics

Market Efficiency-Market Failure Recall that: Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market

The Law of Supply Firms are willing to produce and sell agreater quantity of a good when the priceof the good is higher. This results in a supply curve that slopesupward

Monopoly While a competitive firm is a price taker, amonopoly firm is a price maker. A firm is considered a monopoly if . . . – it is the sole seller of its product. – its product does not have close substitutes