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Market Economics

Market Economics. Current Issues - LHS. Key Concepts. Profit and Loss Risk and reward of doing business Success not guaranteed; failure is part of evolution of economy (“creative destruction”) Incentive Something that motivates a person to act in a particular way Supply and Demand

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Market Economics

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  1. Market Economics Current Issues - LHS

  2. Key Concepts • Profit and Loss • Risk and reward of doing business • Success not guaranteed; failure is part of evolution of economy (“creative destruction”) • Incentive • Something that motivates a person to act in a particular way • Supply and Demand • Opportunity Cost • Regulation & De-Regulation

  3. Supply and Demand • Supply • Reflects the amount of a product available to be purchased at a particular price • UPWARD slope • Higher the price, the more quantity of a product is available (why?) • Lower the price, the less quantity of a product is available (why?) Supply Curve

  4. Supply and Demand • Demand • Reflects the desire for a product at a particular price • DOWNWARD slope • The higher the price, the more quantity that will be available (why?) • The lower the price, the less of a product will be available (why?) Demand Curve

  5. Supply and Demand • Finding “equilibrium” between supply and demand • Equilibrium = where supply, demand curves intersect • Means that the price of a product is maximizing sales, and there is no inventory left over • When this happens, everyone is happy • Why is Consumer? Seller? • Unfortunately, it’s only theoretical…

  6. Opportunity Cost (“OC”) • OC is the relative value of activities, in terms of the activity NOT chosen • Thus, the “cost” is the lost opportunity that results from making your choice • Ex 1: Choosing between 2 TV shows w/ no chance to record the one not watched • Ex 2: College vs. getting a job • Ex 3: Going to Disneyland vs. remodeling bathroom

  7. Government Regulation & the Economy • Two categories • Economic regulations that seek to control prices • Prevent monopolies from gouging consumers • Stabilize agricultural prices • Anti-trust law that strengthen market forces to avoid direct regulation • Prohibit practices that lessen competition • Prevent mergers that would limit competition

  8. Government Regulation of the Economy • Other bases of government regulation • Protecting public’s health and safety • Maintain clean and healthy environment • Preventing businesses from failing (since 2008) • Bailouts, direct purchase of business by government • Nationalization of businesses: appropriate or not?

  9. Deregulation • Conservatives usually support fewer regulations on business • They argue that regulations… • Interfere with free enterprise • Increase costs of doing business • Contribute to inflation • Is deregulation appropriate or not? Public utility deregulation

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