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Transcript
Principles of MicroEconomics
Fall, 2012
DR. ANN DAVIS
ASSOCIATE PROFESSOR OF ECONOMICS
MARIST COLLEGE
[email protected]
What have
you noticed
for sale on
the streets
of Florence?
Any
examples?
What is for sale for money and what
isn’t? What’s the difference?
Definition of Economics
 Economics is the study of production, distribution,
and consumption of necessities and other products
 At the same time, income distribution and economic
security are also involved.
 Modern economies are organized by means of
markets, a specific set of institutions that has
evolved since early 16th century
 Markets exist once production of commodities for
the sole purpose of sale and profit is well
established
Commodities and Markets
 A commodity is a useful product
which is produced primarily for the
purpose of sale for profit
 Firms are usually engaged in commodity
production
 Firms are able to sell commodities in markets,
where consumers can purchase these commodities
for money at prices set by supply and demand
 Sometimes markets are given specific locations
(the mall) or given capacities (trading on eBay)
Requirements for Markets
Private property
Legal protection
Currency as legal tender (payable for debts, taxes)
Financial system for loans and deposits (credit)
Purchase of inputs like labor, machinery, and raw
materials with money
 Space for production, distribution, retail sale
 Ownership of product by firms, or by consumers
 Sale for money for a price set by supply and
demand





Gold sculpture on the
doors of the Battistero
(Doors of paradise by
Ghiberti in 1425-1452,
bronze with gilt
highlights, restored in
1948 and 1966; the
originals are now stored
in the Museum of the
Opera del Duomo)
Battistero di San Giovanni
Examples from Florence
Commodity
Not a commodity
 Gold jewelry sold in
 Gold doors of paradise
shops on the Ponte
Vecchio
on the Battistero di San
Giovanni
Other Examples?
Major Institutions
Related to the Modern Economy
Government
Home
Markets
Ecology (Natural
Resources)
Market Forces
 Incentives for action based on a change in price of
a commodity, for buyers and sellers of that
commodity
 For profit-making firms, market forces can mean
lowering prices if a competitor is selling the same
product more cheaply
 For workers, market forces can mean accepting a
less pleasant job or a lower wage, because that is all
that employers are offering (at a given time or
place)
Both Sides
How to argue both sides?
Careful Methodology:
 Objective information
 Authoritative sources
 Logical coherence
 Clear definitions
 Multiple points of view
 Articulate underlying values
Are Markets Everywhere?
 Yes
 No
 Markets are everywhere,
 Markets are legally
wherever there is a need
to be filled, and wherever
there is a person willing to
supply a need (ex. Sleep;
ex. marriage)
organized for sale of
commodities for money
 Markets developed
historically, first in
Europe in the 16th century,
and then expanded
rapidly during the
Industrial Revolution (ex.
Textiles)
Yes, Markets Are Everywhere
 Any wish is potential demand
 Anything I own is potential supply
 Anyone can develop a business; all it takes is
initiative and imagination
 I can sell anything that I am willing to part with
 Government is not necessary for markets to
work well
No, Not Everything is For Sale
 A wish must be backed by purchasing power, to be
fulfilled; cash; effective demand
 There are laws against selling certain items, and
setting certain conditions
 Controlling the money supply, maintaining courts
and jails, stabilizing the economy, providing for
public goods and externalities are tasks conducted
by government, as well as protecting property and
enforcing contracts
 Established buyers and sellers, and critical mass,
help markets work more efficiently
Resolution
 Actual markets are not the same as
potential markets
 Actual markets require legal authorization to sell
commodities, as well as established buyers and
sellers, money, and critical mass for predictable
prices
 Actual markets can be described in terms of time,
place, suppliers, workers, customers, price
 Potential markets can be spotted by
entrepreneurs, for future development
One Text’s Contribution
Economic Forces
(Potential Markets):
 Real world rationing
mechanisms in response
to scarcity (such as first
come, first served;
seniority; lottery; merit;
membership; do-ityourself; sharing with a
friend; government
production for use)
Market Forces
(Actual Markets):
 Allocation of scarce
resources by price
(determined by supply
and demand in the
market)
 Legal ownership
 Buying and selling
commodities for money
Reference to Self Interest as Criterion
 Markets are
everywhere: human
nature is based on
individual self-interest
and rationality; everyone
acts as if markets are
everywhere.
 Markets exist only
when commodities
are traded for money;
human nature is basically
cooperative; the family
and government are based
on common interest and
public good; only the
economic system of
capitalism is based on
individual self-interest
Is There an Actual
Market for Kidneys?
 Yes
 No
Is There Be a Potential
Market for Kidneys?
 Yes
 No
Positive vs. Normative Economics
Is there a market for
kidneys?
Should there be a market
for kidneys?
 Does the provision of
 Would we be better
kidneys in the US meet
the criteria for markets
(an empirical
question)?
served if there were a
market for kidneys (a
question based on
values)?
Other Criteria for Markets
 One key criterion for markets is the existence of a
wage labor force
 That is, people who 1) do not live on farms, 2) do not
have enough resources to start their own businesses,
and 3) cannot get welfare must work for someone
else.
 Without wages, such people would have no way to
eat (since necessities are only offered for sale for
cash)
Wage Labor Force
Positive Dimensions
Negative Dimensions
 Motivation to work;
 Threat of starvation if
incentives
 Reward for effort
there are not enough
jobs available
 Humanity is reduced
by treating workers as
a “commodity,” an
object for sale
Varieties of Capitalism
More Market (US, UK)
Less Market (Europe)
 Fewer options to wage
 More security to assure
labor, to increase
worker incentives
 The best things in life
are the financial
rewards to hard work
basic necessities
 More government
provision of public
goods such as
education, health,
public parks, and
infrastructure
Discussion Question
 What are the current trends in the world economy
today, more market or less? Examples?