We are going to learn two very
important things in this lesson.
First, we will put demand and supply
together and learn how to use the model to to see why
products have the prices that they do. Then, and more
importantly, we will see what causes prices to change.
If you hear on the news or read in
your news app, that the price of gasoline is going down, we
will be able to explain WHY. The causes of changes in prices
of products are the five non-price determinants of demand
(Pe, Pog, I, Npot, T) and/or the six non-price determinants
of supply (Pe, Pog, Pres, Tech, Tax, Nprod.). Whenever you
hear that the price of something is changing think of which
of these 11 possible causes have changed, draw the graph and
shift the appropriate demand and/or supply graph, and the
graph will show the price changing.
Second, after we learn that in a
competitive market economy the interaction of demand and
supply will determine what the prices of products will be
and how much people will buy at that price, we will ask: Is
this the allocatively efficient quantity and price? Our goal
is to show that in a competitive market the price will
change until allocative efficiency is achieved. In chapter 2
we learned that markets are allocatively efficient. This
means they will produce the quantity of goods that maximizes
the society's satisfaction. After studying chapter 3 we will
bew able to show the allocatively efficient price and
quantity on a graph.
Competitive markets are
efficient.
|
