Market economy –
Consumer decides, present consumption/short term oriented
Can create problems for future generations
Command economy- Long term decision oriented, made by group of people
Market and Command cannot solve problem of scarcity
Markets = Demand + Supply
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Goods ->
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Products
Services
Factor Markets = Producers (Demand)Labor  Households (Supply)
Demand – Inverse Relationship Price(y)/Quantity(x) [y=-x+b]
Law of Demand- As price ^ quantity decreases (@point in time)
Shift in demand curve dependent on income (income change = variable b)
For normal product, increase in salary = increase in demand for that product
Increase in income = decrease in demand for inferior product (curve shifts Left)
Demand factors- Taste, expectation (expectation of price change)
Substitute products- If Price of oranges decreases, quantity increases. Demand of apples decreases.
(substitute product) Demand stays the same of oranges.
If price of substitute product decreases, demand for original product shifts to the right.
At the same price, we demand less.
Every point on demand curve is the same demand.
Complementary products
Charges & Phones
Charger price increase, quantity decreases
Phone demand decreases
(opposite substitute products)
Law of Supply – Direct(positive) correlation between the price of a product and the quantity that will be
produced of that product [y=x+b]
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Variable b is dependent on the price of resources (Labor, Land, Capital)
Factors – Tastes, expectations
Opportunity Costs –