The Market Forces of Supply and Demand Supply and Demand are the two wordsthat economists use most often. Supply and Demand are the forces thatmake market economies work. Modern microeconomics is about supply,demand and equilibrium

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

A firm, using two inputs K and L to produce one product, whose production function is 2 / 5 3/ 5 Q = 25L K

Outline The economics of asymmetric information Political economics Behavioral economics

The Theory of Consumer Choice The theory of consumer choice addresses the following questions: – Do all demand curves slope downward? – How do wages affect labor supply? – How do interest rates affect household saving?

Factors of Production Factors of production are the inputs used to produce goods and services

“The best things in life are free. . .” Free goods provide a special challenge foreconomic analysis Most goods in our economy are allocatedin markets… for these goods, prices are the signalsthat guide the decisions of buyers andsellers

The Meaning of Competition A perfectly competitive market has the following characteristics: – There are many buyers and sellers in themarket

Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers

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