Market Economics

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
– 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
– 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
– Equilibrium = where
supply, demand curves
– 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
• 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
• Conservatives usually
support fewer
regulations on business
• They argue that
– Interfere with free
– Increase costs of doing
– Contribute to inflation
• Is deregulation
appropriate or not?
Public utility deregulation