The Economic Problem

Economic Systems

• Interdependence of markets
• effect of a rise in demand
• effect in market for that good

• Pg

• 

• Goods Market

• Dg

• 

• shortage
• (Dg > Sg)

• Sg

• 

• Dg

• 

• until Dg = Sg

• The price mechanism:
• the effect of a rise in demand

Economic Systems

• Interdependence of markets
• effect of a rise in demand
• effect in market for that good
• effect in factor markets

• Goods Market

• Dg

• 

• shortage
• (Dg > Sg)

• Pg

• 

• Sg

• 

• Dg

• 

• until Dg = Sg

• Factor Market

• Sg

• 

• Sf

• 

• Df

• 

• until Df = Sf

• 

• Df

• shortage
• (Df > Sf)

• Pf

• 

• The price mechanism:
• the effect of a rise in demand

Economic Systems

• Interdependence of markets
• effect of a rise in demand
• effect in market for that good
• effect in factor markets

• effect in other goods markets
• effect in other factor markets

Q Assume that there is a fall in demand for a good. Ceteris paribus, this will result in:

• A rise in the price of the good and a fall in the price of factors used to make it.
• A rise in the price of the good and a rise in the price of factors used to make it.
• A fall in the price of the good and a fall in the price of factors used to make it.
• A fall in the price of the good and a rise in the price of factors used to make it.

Economic Systems

• Interdependence of markets
• effect of a rise in demand
• effect in market for that good
• effect in factor markets
• effect in other goods markets
• effect in other factor markets

• Competitive markets
• perfectly competitive markets
• everyone is a price taker
• why study perfect markets?

Economic Systems

• The mixed market economy
• Economic reasons for government intervention
• allocative role
• distributive role
• regulatory role
• macroeconomic role