Market Economics

Current Issues - LHS

Key Concepts• Profit and Loss– Risk and reward of doing business– Success not guaranteed; failure is part of

evolution of economy (“creative destruction”)• Incentive– Something that motivates a person to act in a

particular way• Supply and Demand• Opportunity Cost• Regulation & De-Regulation

Supply and Demand• Supply– Reflects the amount of a

product available to be purchased at a particular price

– UPWARD slope• Higher the price, the more

quantity of a product is available (why?)

• Lower the price, the less quantity of a product is available (why?) Supply Curve

Supply and Demand• Demand– Reflects the desire for

a product at a particular price

– DOWNWARD slope• The higher the price, the

more quantity that will be available (why?)

• The lower the price, the less of a product will be available (why?)

Demand Curve

Supply and Demand• Finding “equilibrium”

between supply and demand– Equilibrium = where

supply, demand curves intersect

– Means that the price of a product is maximizing sales, and there is no inventory left over

– When this happens, everyone is happy • Why is Consumer? Seller?• Unfortunately, it’s only

theoretical…

Opportunity Cost (“OC”)• OC is the relative value of

activities, in terms of the activity NOT chosen

• Thus, the “cost” is the lost opportunity that results from making your choice– Ex 1: Choosing between 2

TV shows w/ no chance to record the one not watched

– Ex 2: College vs. getting a job

– Ex 3: Going to Disneyland vs. remodeling bathroom

Government Regulation & the Economy

• Two categories– Economic regulations

that seek to control prices• Prevent monopolies

from gouging consumers

• Stabilize agricultural prices

– Anti-trust law that strengthen market forces to avoid direct regulation• Prohibit practices that

lessen competition• Prevent mergers that

would limit competition

Government Regulation of the Economy

• Other bases of government regulation– Protecting public’s

health and safety– Maintain clean and

healthy environment– Preventing businesses

from failing (since 2008)• Bailouts, direct purchase

of business by government

• Nationalization of businesses: appropriate or not?

Deregulation• Conservatives usually

support fewer regulations on business

• They argue that regulations…– Interfere with free

enterprise– Increase costs of doing

business– Contribute to inflation

• Is deregulation appropriate or not?

Public utility deregulation