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MSU / Economics / EC 2113 / What are the characteristics of the market system?

What are the characteristics of the market system?

What are the characteristics of the market system?

Description

School: Mississippi State University
Department: Economics
Course: Principles of Macroeconomics
Professor: Heriberto lozano
Term: Spring 2017
Tags: Macroeconomics
Cost: 50
Name: Exam 1 Study Guide
Description: This study guide covers material from chapters 1-3
Uploaded: 02/10/2018
6 Pages 213 Views 2 Unlocks
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Exam One Study Guide: Chapters 1-3


What are the characteristics of the market system?



This study guide will be a brief overview of the material covered in my previously uploaded notes. Chapter One: Limits, Alternatives, and Choices

∙ Scarcity: restricts options and demand choices

∙ Opportunity Cost: To obtain more of one thing, society forgoes the opportunity of getting the next best thing that could have been created with those resources.

∙ Know the steps of the scientific method 

The Cost > The Benefit

If you regret your decision, you did not make the optimal decision!!

Marginal Analysis 

∙    Marginal means “extra”

∙    Marginal benefit (MB) v. Marginal Cost (MC)


What is the legal market for human organs?



That’s not worth it  MC > MB Don't forget about the age old question of What is the areolar loose?

The more we have of something decreases the marginal benefit

Going for the “extra” will have a cost Don't forget about the age old question of What are the types of regions in geometry?

MB > MC ­ Keep Doing It

MC < MB – Stop Doing It

MC = MB – The Optimal Solution 

Refer to page 9 in the book to see the resource categories

Production Possibilities Table

Lists the different combination of two products that can be produced with a specific set of  resource, assuming full employment.

(If you need extra help with this topic there is a 4­question quiz on page 11) Positive and Normative Economics 

Positive = economic statements that are factual 


How will the goods be produced?



Normative = economic statements that involve value judgments 

Positive statements can be confirmed, or refuted, normative statements cannot It is all a matter of Fact v. Opinion

Exam One Study Guide: Chapters 1-3

We always want more, but we have limited resources.

Resources are not transferable from one industry to another

You do not want to waste resources that is being inefficient

Points on the PPF Line are attainable and efficient

To reach unattainable resources, you have to increase the resources you have = economic growth We also discuss several other topics like What is the concept of hexagon development?

Chapter 2: The Market System and the Circular Flow

∙ Economic System: a particular set of institutional arrangements and a coordinating  mechanism­ to respond to the economizing problem.

∙ Laissez­faire Capitalism 

o Ideal economy

o “Keep government from interfering w/ the economy”

  ∙        The Command System 

o The Command System is known as socialism or communism

o Government ownership of resources

o Decisions made by a central planner board

o North Korea, Cuba, and Myanmar

The Market System 

∙ The Market System is a mix of decentralized decision­making with some government  control system

∙ Systems found in much of the world If you want to learn more check out Continental crust is made up of what?

∙ Private markets are dominant force

∙ Private ownership of resources

∙ Self­interested behavior

Characteristics of The Market System We also discuss several other topics like What are the two different routes to an emotion?

∙ Private Property

∙ Freedom of enterprise choice

∙ Self­interest

∙ Competition

∙ Market and Prices

If your need a more in­depth review over these systems, refer to pages 28­29. The 5 Fundamental Questions

1. What will be produced?

Exam One Study Guide: Chapters 1-3

2. How will the Goods and Services be produced?

3. Who will get the Output?

4. How will the System Accommodate change?

5. How will the system promote progress?

How the System Deals with Risk 

∙ Business owners and investors face risk

o Losses due to input shortages

o Changes in consumer tastes If you want to learn more check out What are the benefits of the corporate form of business?

o Natural disasters that affect supply chain

o Employees and supplies have security

 Paid whether the firm makes a profit or not

Chapter 3: Demand, Supply, and Market Equilibrium

Markets 

∙ Interactions between buyers and sellers

∙ Markets may be

o Local

o National  

o International  

∙ Price is discovered in the interactions of buyers and sellers

*Price tells how resources will be assigned

Competitive Market 

Assumptions

∙ Many sellers and buyers

∙ One product

∙ Everyone is a price taker or a price giver (not market power) -Perfect Information: You know everything that happens

Demand 

∙ Demand schedule or demand curve

∙ The amount consumers are willing and able to purchase at a given price ∙ Other things equal

∙ Individual demand

∙ Market demand

Law of Demand 

 ∙     Other things equal, as price falls, the quantity demand rises, and as price  rises, the quantity demand falls. 

∙    Explanations

o Price acts as an obstacle to buyers

Exam One Study Guide: Chapters 1-3

o Law of diminishing marginal utility

o Income effect and substitution effect

(Refer to the Demand Curve on the PowerPoint) 

Determinants of Demand 

∙     Change in consumer taste and preferences

∙     Changes in the number of buyers

∙     Change in income

o Normal goods

o Inferior goods

∙ Change in price of related goods

o Complementary good

o Substitute good

∙ Change in consumer expectations

o Future prices

o Future income

Supply 

∙ Supply schedule or supply curve

∙ Amount producers are willing to sell at a given price

∙ Individual supply

∙ Market supply

Law of Supply 

∙ Other things equal, as the price rises, the quantity supplied rises and as the  prices falls, the quantity supplied falls

∙ Explanation:

o Price acts as an incentive to producers

o At some point, cost will rise

(Refer to supply curve on the PowerPoint)

Determinants of Supply 

∙ A change in resource price

∙     A change in technology

∙     A change in the number of sellers

∙     A change in taxes and subsidies

∙     A change in prices of other goods

∙     A change in producer expectation

Market Equilibrium 

∙ Equilibrium occurs when the demand curve and supply curve intersect ∙ Equilibrium price and Equilibrium quantity

∙ Surplus and shortage

∙ Rationing function of prices

Exam One Study Guide: Chapters 1-3

∙ Efficient allocation

Efficient Allocation 

∙ Productive efficiency

o Producing goods in the least costly way

o Using the best technology

o Using the right mix of resources

∙ Allocative Efficiency

o Producing the right mix of resources

o The combination of goods most highly valued by society

(Refer to Market Equilibrium graph on PowerPoint)

Rationing Function of Prices 

∙ The ability of competitive forces of demand and supply to establish a price at which  selling and buying decisions are consistent.

(Refer to the Changes in Demand and Equilibrium graph)

Government Set Prices 

∙ Price ceiling 

o Set below equilibrium price

o Rationing problem

o Black market

∙ Example is rent control

∙ Price floor 

o Prices are set above the market price

o Chronic surplus

∙ Example is the minimum wage law

Legal Market for Human Organs 

∙ What if we created a legal market for human organs?

∙ Positive effects

o Increase the incentive to donate

o Eliminate the persistent shortage of eyes, livers, hearts, kidneys, etc

∙ Negative effects

o Diminishes the special nature of life by commercializing it

o  The market would leave out the poor and uninsured 

o   Increases the cost of medical care

∙ Prohibition on market solution has resulted in a $1 billion illegal market

Supply and Demand can be a very tricky concept to learn, if you need any extra practice refer to  the entire chapter 3. There are graphs and practice questions that you can utilize for extra help. 

Exam One Study Guide: Chapters 1-3

Good Luck Everyone!

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