Class Summary 11/21

Equilibrium & The Price System

First we want to think about why we use money and the advantages that using money give society. We use money because it lowers the cost of exchange with anything else. In reality, with money we no longer have to use a bartering system, per say, if you went back to bartering you would end up trying to become self-sufficient because it is more costly to barter. "Double-coincedence of Wants;" what you barter with may not be what someone else wants, therefore it would become difficult to get the goods that we want and by becoming self-sufficient we would end up with the '100-mile suit'. When you think about money it is just used as a mode of transaction. Without money it becomes harder to divide goods and to trade. Money lubricates trade. Money is a "transaction-cost reducer". The process by which prices are determined is what is really important...

When looking at supply & demand curves you have to always have two questions in mind, how is each side of the market affected? And whose plans are satisfied within the market? When you think about each question in relation to buyers and sellers you can relate the supply and demand curve to each of the buyers and sellers and their outcome. (Think about when there is surplus of a good OR a shortage of a good).

Equilibrium is where at one particular price and quantity NO ONE wants to change their behavior. Neither buyers or sellers have an incentive to change behavior.