“The best things in life are free. . . ” Free goods provide a special challenge for economic analysis Most goods in our economy are allocated in markets… …for these goods, prices are the signals that guide the decisions of buyers and sellers
The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often. Supply and demand are the forces that make market economies work. Modern microeconomics is about supply, demand, and market equilibrium
Market Efficiency - Market Failures Recall that: Adam Smith’s “invisible hand” of the marketplace leads selfinterested buyers and sellers in a market to maximize the total benefit that society can derive from a market
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
The Law of Supply: uFirms are willing to produce and sell a greater quantity of a good when the price of the good is high. uThis results in a supply curve that slopes upward
Ten Principles of Economics Thinking Like an Economist Interdependence and the Gains from Trade The Market Forces of Supply and Demand Elasticity and Its Application Supply, Demand and Government Policies Consumers, Producers, and the Efficiency of Markets Application: The Costs of Taxation Application: International Trade Externalities Public Goods and Common Resources The Costs of Production Firms in Competitive Markets Monopoly Oligopoly Monopolistic Competition The Economics of Labor Markets
