11/2/11

• Price
• signal to buyers about scarcity
• signal to sellers about value
• information
• emerges from markets
• Information Problem
• with the exception of a small group, it's extremely difficult to ascertain what people want
• if you figure out what is wanted, you then need to find out how to obtain it
• Markets
• any decentralized, unorganized interaction between potential buyers and sellers
• $ prices and/or non-$ prices emerge
• the goal of a market is to produce order
• order = commodities on the shelf
• market process is where a price is determined
• buyers
• "demanders"= households and firms
• households buy goods
• firms buy services (ex: labor)
• sellers
• "suppliers" = firms and households
• firms supply households with goods and services
• households supply firms with money and labor
• Perfect competition
• no one really wants it
• it's the process that matters
• Transactions
• regular transactions don't effect prices for other people
• Demand
• relationship between desired amount of a good and sacrifices necessary to obtain said good
• quality demand = amount of a good that buyers are willing able to consume at a particular price
• law of demand = quantity of a good falls when its demand rises