Institutions of the Market:

Private property
Freedom of enterprise
Freedom of choice
Competition
Specialization
Use of money
Limited government

Money facilitates trades when wants do not coincide.

Look @ the circular flow diagram in Figure 2.2 in the textbook. (hydraulic diagram)
Specialization:
-

To have comparative advantage is to be able to produce something at a lower

opportunity cost than something else.
- In a two-good world, fi one producer has a comparative advantage in one
good, the other producer has a comparative advantage in the other.
Specialization is the concentration of productive effort in goods in which the
producer has comparative advantage.
To benefit from specialization requires the existence of trade.

C. 3: Demand, Supply, and Market Equilibrium

Demand is the amount that consumers are willing and able to buy at a series of
possible prices over a specified period of time.
Ceteris Paribus: price and quantity demanded are inversely related. If something
costs more, then less quantity is demanded. Vice Versa.
Income effect means that if price falls, purchasing power increases; like an
increase in income.
Substitution effect means that buyer will substitute more into good if its price
falls.
Change in demand is caused by change in determinant of demand (demand
shifter)
Demand shifters are tastes, number of buyers, income, price of related
goods, expectations