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Notes on markets and supply and demand

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Markets in Actions Economic Problem- unlimited wants limited resources. Opportunity cost- benefit forgone of the next best alternative. Factors of production: Land: natural resources ex: coal, oil, water Labor: Human work force Capital: Physical manmade resource used in the production process Entrepreneurship: a person who brings together all other factors. PPF Production possibility frontier- A PPF shows all combinations of two goods that an economy can produce within a given amount of resources. 1) only 2 goods are produced 2) all resources are fully and efficiently employed. 3)Resources can be switched by production one good to another. Markets A market is a place where buyers and sellers meet to exchange goods and services. ...read more.


Costs of productions- increase will shift to left. Decrease will shit to right 3) Technology: Shift to the right 4) Taxes and subsidy: increase tax shit to left. Subsidy to right 5) External shocks: floods shift to left. Producer Surplus This is the difference between the price producers are willing to supply a good for and the price they actually receive. Market equilibrium- Situation where the supply of an item is exactly equal to its demand. Since neither there is surplus nor shortage in the market, there is no innate tendency for the price of the item to change. Productive efficiency: is about how to combine the available resources to make a product at the lowest cost. ...read more.


Non-provision of pure public goods 4) A failure of signaling function of price mechanism to take into account positive and negative externalities. 5) Imperfect and asymmetric information among buyers and sellers in different markets. Externalities are an affect whereby those not directly involved in taking a decision are affected by the actions of others. Effects on economics agents known as third parties. Negative externalities occur when the Social costs are greater than private costs. Private costs are the costs incurred by those taking a particular action. Positive externalities occur when the social benefit is greater than the private benefit. Private benefits are the benefits directly accruing to those taking a particular action. external benefits are the benefits that are accrued as a consequence of externalities to third parties. Public Goods: Goods that are collectively consumed and have the characteristics of non- excludability and non-rivalry ...read more.

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