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Lecture Principles of microeconomics - Chapter 4: Supply and demand: An introduction

This chapter introduces you to the market mechanism for allocating goods and services among buyers and sellers. You will also learn why markets usually do a better job of allocating goods and services than bureaucratic rules and regulations. | Supply and Demand: An Introduction Slide 4 - What is Chapter 4 about? Slide 4 - I. What, How and For Whom? Central Planning vs. the Market Slide 4 - Universal Questions All economic systems must answer the following questions: What should be produced? How should it be produced? For whom will it be produced? There is more than one way to get answers to these questions. Slide 4 - Planning: Central agency decides: Production targets (What/how much) Planning of how to achieve the targets (How) Distribution of the goods and services produced (For whom) Examples Former Soviet Union Cuba, North Korea, China In practice, always some market & some planning – issue is % of each Central Planning is not prevalent today But planning common within organizations Slide 4 - The Market: Private markets are the dominant form of economic organization nowadays Individuals & firms interact, within a framework of laws, regulations & customs Decentralized decisions on Which careers to . | Supply and Demand: An Introduction Slide 4 - What is Chapter 4 about? Slide 4 - I. What, How and For Whom? Central Planning vs. the Market Slide 4 - Universal Questions All economic systems must answer the following questions: What should be produced? How should it be produced? For whom will it be produced? There is more than one way to get answers to these questions. Slide 4 - Planning: Central agency decides: Production targets (What/how much) Planning of how to achieve the targets (How) Distribution of the goods and services produced (For whom) Examples Former Soviet Union Cuba, North Korea, China In practice, always some market & some planning – issue is % of each Central Planning is not prevalent today But planning common within organizations Slide 4 - The Market: Private markets are the dominant form of economic organization nowadays Individuals & firms interact, within a framework of laws, regulations & customs Decentralized decisions on Which careers to pursue Which products to produce or buy When / where to start businesses Who gets what is decided by purchasing power and individual preferences. Slide 4 - Market Coordination Most goods and services are allocated by markets, which often work quite well in matching what consumers want with what firms produce Why ? But not always Why ? Slide 4 - Is there a ‘Pure’ Market System? No. Allocation of goods and services is mostly done with a combination of markets, regulations, and some central ‘management’ (e.g., government policies) Why not a pure system? Markets need a framework of laws & customs Property rights need to be defined & enforced Macro – may not be enough demand Sometimes - nonmarket methods of allocation can have both unintended and undesirable effects on a market that might otherwise function well. Slide 4 - II. Markets and Prices Slide 4 - Markets A market for any good consists of all buyers and sellers of that good Includes individuals who either do sell or .