ECN 203 1st Edition Lecture 6Outline of Last Lecture II. Interdependent Choice and Market Coordinationa. Relaxing our No interdependence Assumptioni. The challengeIII. The Division of Labor – Reason for Productivity IV. What Limits the Division of Labor?V. Forms of Coordinationa. Traditional systemb. Command economy c. Liberal System of Free Marketsi. Establishing Commutative justice ii. Establishing Distributive Justice VI. Magic of Markets VII. Role of Money in Marketsa. Characteristics of Good Medium of Moneyb. Commodity vs. Fiat Money Outline of Current Lecture VIII. Basic Market A. Supply/Demand Attitudes B. Market Picture C. Market CoordinationD. Market Shifts E. The Signal F. The Magic of Marketsa. The Invisible Hand Current Lecture1/28/153.3 How a Market Works - Basic Market o Supply/Demand are attitudes These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Both can be thought of as “reflecting the attitude” of suppliers and demanders, respectively, to the market. o Market Picture Horizontal axis = quanity (Q) Vertical axis = price (p)o Demand is an attitude Tell the demander her price and given her attitude, she’ll determine the quantityshe wants. Functional Form – another way to represent demand Q^D=D (p I shift variables)- Q = the number being demanded at the given prices, quantity demanded given their attitudes - D = demand: the overall relationship between p and Q for demanders. The attitudes of demanders o Supply is an attitude Given the supplier’s attitude, “S”… “p” determines “Qs” Can be represented by funcational form Q^S=S (p I shift variables)- S = the overall relationship between Q and p - Q^S = quantity supplied, is the actual number supplied at a given price (p)o Market Coordination How does the market adjust to bring balance to the choices of suppliers and demanders? How does the market coordinate?o Market Shifts The value of using functional form for demand - It helps us remember that atittudes can change or graphically demand can shift. Changes in shift variables lead to a new equilibrium- Ex: one shift variable for product demand is “taste”- As tastes for a commodity get stronger, demand shifts right. o The Signal on Which Market Adjusts Suppliers and demanders are not watching one and another They are maximizing their utility by watching and responding the same signal - PRICEo The magic of markets If suppliers’ and demanders’ responses to the price lead to an imbalance, a “disequilibrium” in the market… Under the right conditions, with no one in charge, the price will adjust until the market reaches equilibrium The invisible hand by Adam
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