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CH4 - Demand and Supply - Coggle Diagram
CH4 - Demand and Supply
What's a Market
-> a process, interaction between buyers and sellers
- markets exist where there is a process of competing bids (from buyers / demanders) and offers (from sellers / suppliers)
MARKET MIX COMPETITION
- market mix: competition and cooperation
Competition: action, bid against other buyers to get what you want ; sellers competing for consumers Cooperation: exchange of buyer and seller - happens when both side win and better off
*marginal benefit of product is great as its price
The RULES of the GAME
- through laws for trade to happen
Property rights -> legally enforceable guarantees of ownership of physical financial / intellectual property
- physical property (land, building, cars)
- financial property (stock, bonds, savings)
- intellectual property (music, books, from creative effort and protected by copyright and patent)
without property right, no incentive to product anything for exchange
- trust online is built through implemented rules that promote trust (ex: amazon and ebay use systems that guarantee payments)
- for buyers to give anonymous public feedback
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Consumer Surplus, producer surplus and efficiency
equilibrium price -> balance between competition and cooperation
- mutually beneficial markets
- efficient market outcomes: consumers get more benefits and business receive more money to cover opportunity costs
CONSUMER SURPLUS
-> difference between amount a consumer is willing and able to pay and the price that is actually paid
- also a marginal cost curve
- consumer want to buy at a high price but the equilibrium price was lower which then the consumer got it at a lower price
PRODUCER SURPLUS
- difference between amount of producers is willing to accept and the price actually received
- min price that business accept - covering all marginal oppurtunity cost of production to supply product
- higher marginal opportunity cost is up in the supply curve while lower is at the bottom
Economic efficiency
Market -> producing right product and services that consumer want at competitive price that are profitable for business - everyone is happy consumer surplus + producer surplus = total surplus
- marginal benefit > Marginal cost - benefit for consumer
- marginal cost > marginal benefit - benefit for business
Deadweight loss -> efficiency loss in the market that better trades can occur but not occurred leading to decrease in overall wellbeing
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