Class Summary #26 for 11/2/11

Today we learned about supply/demand and market systems.

The biggest economic challenge is getting people together so they can buy and sell.

A transactions costs= anything that prevents beneficial exchanges from taking place.

Then we learned about middlemen. Below are the notes we learned about them:

• Middlemen generally have a bad reputation
• Example of middlemen: ticket master, stubhub
• They bring sellers and buyers together and take a fee for giving us the convenience of being able to buy an item in a convenient location
• middlemen have a comparative advantage in lower transactions costs for customers and producers. They have the ability to bring buyers and sellers together
• Wegmans is the ultimate middleman- reduces transactions costs between farmer and customer
• For example: Apple at wegmans: $1.69, apple from a farm: $0.31. Is Wegmans ripping us off? No, they are just reducing transactions costs for us in terms of making it more convenient for us to get the item we desire, considering the farm is far away in an inconvenient location. So Wegmans is actually making it cheaper for us and producers/farmers to make a transaction.
• For the farms, it reduces the search cost as well because non-locals from Rochester would never know where to get/buy an apple from (no idea what farm to go to)
• Reason why middlemen work: because we live in a society where people can exchange property rights

Then we learned about exchange. Exchange can occur in small groups. But we live in a world of 7 billion people. There are two problems with large groups trying to come together to exchange:

• Information problem- hard to understand outside a small group what people want and know the best way to deliver an item to them
• Barrier- such as distant/trust barriers

Then we learned about prices/demand. 

A price is simply information. They are signals to buys and sellers about what is scarce and how scarce something is. It is a signal to sellers about what we as a society value.

Markets mean more than just exchanging. It is a whole process.

Markets: prices are determined in a market proces. A market is any group of potential buyers and sellers.

• Could be a physical market- stock market/farmers market
• virtual market- ebay, craig's list
• prediction marker- sports betting

A market is also any decentralized, unorganized interaction between buyers and sellers.

When you have a market, one of two things will emerge:

1. Productions of money prices and/or non money prices.
1. This happens because the goal is to produce order (things are organized as expected)
2. Money prices= reflected in type of business. If there are long lines at a business, then prices tend to be too low and if there is a lot of stuff not being sold, prices are too high
3. Non money prices= good example of this can be seen with free healthcare in some countries. Collective planning authority decides who gets the health-care. In this case, it isn't prices deciding order but somebody. There is no cost to the person and someone will pay for the healthcare in those countries but the cost is that there is no  guarantee you will get the healthcare you need as there is not enough to go around. Therefore, the healthcare does get rationed and it is not completely free even though there is no price associated with it.
1. Another example: we are rationed by quality (SAT tests, ACT, grades, extracurriculars, etc.) to get into UR. That too is a market.

There are two different names for participants in a market:

Buyers:

1. "Demanders"
1. In a goods market, households make up the market.
2. In a factor market, firms make up the market.

Sellers:

1. "Suppliers"

1. Goods market, firms.
2. Factor markets- households.

Then we learned some important notes to conclude class:

• When two people transact, their transaction has little to no effect on anyone else's transactions/behaviors.
• Demand is a relation between the amount you wish to obtain and the sacrifices you must make to get it. I.e.: to get an A in Econ, need to study 10 hours a week and to get a B, need to study one hour. Thus, you are considering costs while keeping in mind other things you want to spend time on/give up so you can get your grade.
• Quantity Demanded: a plan, a number- amount of a good that buyers are WILLING and ABLE to consume at a particular price.
• i.e. us as students to buy Maserati- 0 quantity demanded because we don't have enough money to buy one at current price
• Law of Demand= other things equal, the quantity demanded of an item falls when the price of the item rises