Current Issues - LHS • 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 – 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 • 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 • 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… • 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 • 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 • 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? • 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