Transcript Markets in Action

• Buyers
Equilibrium
• Sellers
• Information, interaction and competition.
• Price squeezes/narrows to where Qs = Qd and
the market clears.
• This price facilitates all transactions that can
improve the well-being of market participants.
• Market equilibrium maximizes well-being!
• Voluntary Trade makes people better off!
• Buyers
Equilibrium
• Sellers
• Goods go to consumers with the highest
value (WTP)
• Goods are produced the sellers with the
lowest opportunity cost (WTS)
• Market equilibrium maximizes well-being!
• Voluntary Trade makes people better off!
Seasonal Variation: Apples
Seasonal Variation: Beachfront Cottages
Markets in Action
Test Your
Knowledge
Four Questions
Are You Ready?
Cranberries, the
Ruby Slipper & Your Health
1. What would you expect to happen if a new
machine called the Ruby Slipper is introduced
that dramatically improves the cranberry
harvesting process?
A. The demand for cranberries would increase
because more cranberries will be produced.
B. The supply of cranberries will increase as the
marginal cost of production for farmers falls.
C. The quantity of cranberries purchased will
increase as the price falls.
D. Both A and B are correct.
E. Both B and C are correct.
2. Suppose that newly released medical research
reveals significant health benefits associated with
increased cranberry consumption?
A. The demand for cranberries will increase as
people seek the added health benefits of
cranberries.
B. The supply of cranberries will increase as more
people want to eat cranberries.
C. The quantity of cranberries produced will
increase as the price rises.
D. Both A and B are correct.
E. Both A and C are correct.
3. Suppose that both the introduction of the
new harvesting machine and the announced
health benefits happened simultaneously.
What would you expect would happen to both
the price of cranberries and the quantity of
cranberries produced?
The Final Question
• When big (flat) screen TVs were first introduced
in the 1990s they were very expensive and
very few households owned one.
• Over time there were technological
advancements in the production process.
• Over the same period average household
incomes also rose significantly.
4. What effect would these changes have on the
supply and/or demand in the market for big (flat)
screen TVs?
Consumers have
more income
Advancing technology
among sellers
1. How do consumers respond to price changes for the
following goods/services?
• salt, public transportation, gasoline, automobiles
2. What if you wanted to help poor people afford housing?
3. What if you wanted to help low skilled workers?
4. What if you wanted to reduce congestion on city streets?
5. What if you wanted less pollution?