Chapter 3 Flashcards
Main characteristics of market economies
- Self interest
- Incentives
- Market Prices and Quantities
- Institutions
Self Interest
individuals purse their own self interests, doing what benefits themselves and their families the most
Incentives
People respond to incentives
Market Prices and Quantities
Prices and Quantities are determined in open markets in which sellers compete to sell their products to potential buyers
Institutions
All of these activities are governed by a set of institutions largely created by government including:
-Individualist institutions of property and decision making
-Social Institutions of Trust
-Infrastructure for the smooth flow of goods and services
-Money as a medium exchange
-Individualist institutions of property and decision making
before people make an exchange they must be clear about what belongs to whom. For a decentralized exchange to take place people must have individually held private property not owned by the government
Social Institutions of Trust
trust must exist between buyers and sellers. Trust can be established by cultural norms, direct 1 to 1 relationships, or contracts
Infrastructure for the smooth flow of goods and services
refers to physical infrastructure like transportation, and storage
Money as a medium exchange
we need a means of payment to facilitate transfer of goods and services
Natures of private property and contractual obligations are defined by: , and enforced by:
defined by legislature, enforced by courts
private property =
institution
What does the demand function show
quantity demanded of a good for different level of the goods price given the values of other relevant variables
Quantity demanded
Amount that consumers are willing to buy during a given time period
Law of Demand
As price increases, demand decreases
ad demand increases, price decreases
P
Price
Expected Demand Curve
