Jump to navigation
Essential conditions for trade include individual differences, the ability to communicate, the ability to transport, and the ability to establish and maintain institutions.
If someone has a lower opportunity cost of producing a given service, that person enjoys a comparative advantage in the production of that service.
The division of labor creates opportunities to serve and be served by vast multitudes. In an advanced commercial society, people produce things for customers they may never meet.
When people make decisions about which goods and services to buy, they exhibit a predictable pattern of behavior concerning how much they are willing to buy over a given period of time.
If people are doing the best with what they have, we should be able to observe a predictable pattern of behavior over time regarding their willingness to sell goods and services at various prices.
Supply and demand curves help us to predict how much will be traded and at what price under particular circumstances.
Now that we understand and have constructed demand and supply curves, we can use them together to interpret the impact of economic changes on market outcomes.
The amount of surplus generated in a market depends on the quantity traded, and who is trading.
Prices are both information and an incentive to help people to coordinate in complex ways as they individually decide what to produce or consume.
Price controls are restrictions in the movement of prices, and they come in two forms: price ceilings, and price floors. Price ceilings are maximum allowable prices.
In a laboratory experiment, as in real life, price controls—floors and ceilings—prevent buyers and sellers from sending each other a signal.
Adam Smith believed that nations become wealthy when they are free to produce whatever is in the greatest demand and sell it wherever demand is greatest.
