3-Supply and Demand

*Next six lectures: How markets work


  1. Flow of commerce, these are interdependent
    1. Goods-Firms supply home demanders
    2. Labor-Homes supply firms demanders
    3. Finance-Homes invest and send money to firms(e.g. stock market)(when firms save money its done on behalf of the stockholders)
  2. Prices, most speak in “too little too much” references
    1. Like speaking of the weather in “too hot, too cold” references
    2. Proper way is to look at why a price is.
  3. Valuing
    1. Value in use vs. value in exchange(e.g. water v diamonds)
    2. A cynic knows the price of everything and the value of nothing
    3. Price up, demand down
      1. If you buy chicken when its gone up in price you essentially have less power to buy other items needed-Income effect
      2. Take a look at hamburger, or turkey-Substitution effect
    4. Demand
      1. Is a relationship between supply and the quantity demanded
      2. Represented graphically
      3. Each spot on the graph is a particular quantity demanded
    5. Supply
      1. Factors
        1. Weather
        2. Technology
        3. Etc
      2. Equilibrium is when qty supplied=qty demanded
        1. Price too low suppliers don’t want to supply
        2. Too high no one buys
        3. Does not mean everyone is happy with the equilibrium
        4. Markets tend toward equilibrium and provide a win-win
      3. No one must think of equilibrium, like a quarterback does not have to think about physics, but it is at work.

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