WEEK 5
Markets
Market Price
You will learn about:
You will learn to:
Examine economic issues
Apply economic skills
Traditional economics sets out some basic premises. Let's think these through and see where they are happening in our everyday lives.
You will learn about:
- market equilibrium – using diagrams
- movement to equilibrium
- effects of changes in supply and/or demand on equilibrium market price and quantity through the use of diagrams
- effects of changing levels of competition and market power on price and output
You will learn to:
Examine economic issues
- explain how market solutions can lead to improved efficiency
- discuss how market forces can lead to environmental problems such as pollution
Apply economic skills
- graph demand and supply curves and interpret the impact on the equilibrium of changes in market forces
- analyse non-equilibrium market situations and propose solutions to them
Traditional economics sets out some basic premises. Let's think these through and see where they are happening in our everyday lives.
- Markets at equilibrium will provide the most efficient distribution of resources
- Prices reflect the most efficient combination of natural resources, labour, capital and entrepreneurial skills
- Capitalist economies operate on the principles of a free market
- Individuals and businesses have access to information, referred to as perfect knowledge
- Resources will move to highly efficient areas, referred to as perfect mobility
- Productive enterprises attract a monetary value
- Subsidies, tariffs and other government intervention can distort the market
- Markets in disequilibrium will move towards a steady state equilibrium if all market players can act freely
The culture wars between economists and markets practitioners
Shove hard and any group can be sorted into contrasting stereotypes: larks and owls; thinkers and doers; conservatives and progressives. Shove again (or simply stir), and you have the makings of a clash. There is a culture war of this kind even in finance. The two bickering tribes are economists and practitioners, such as traders and fund managers. Economists use formal models based on theory. They are rigorous, sometimes to the point of pedantry. Practitioners’ thinking is looser and more intuitive.
The Economist, 6th February, 2020
Let's look at the two sides of this argument:
Turn and talk:
How does "It's a Wonderful Loaf" present markets?
What characteristics does it give them?
How does "It's a Wonderful Loaf" present markets?
What characteristics does it give them?
Click on the image below and read the article "Any Child Who Dies of Hunger Is a Murdered Child".
Why isn't everyone getting a "Wonderful Loaf"?
Turn and talk: What are the consequences of markets not
delivering goods and services? What stops consumption?
This two-sided view of markets, one that gives and one that takes has created distinct economic systems that governments favour. The three most known are capitalism, socialism and communism. Economics becomes political when governments work within an ideological framework where they make decisions about what to produce, how to produce it and who gets the final product.
Here is a quick summary of each of these three economic systems.
Here is a quick summary of each of these three economic systems.
What happens when economics and politics collide in a revolution?
His face is recognised all over the world – the young medical student who became a revolutionary icon. But was Che Guevara a heroic champion of the poor, or a ruthless warlord who left a legacy of repression?
Watch Alex Gendler put this controversial figure on trial in History vs. Che Guevara.
The maths behind the economics behind the politics
Let's look at these diagrams of a demand and supply curve and interpret the impact on the equilibrium of changes in market forces. Then we'll analyse non-equilibrium market situations and propose solutions to them.
The diagram shows the market demand and supply for wind turbine (per unit).
The diagram shows the market demand and supply for wind turbine (per unit).
- Distinguish between the law of demand and the law of supply.
- Draw this diagram in your workbook. With reference to the diagram, outline how market equilibrium price and equilibrium quantity are established for wind power.
- What is the likely impact on the equilibrium price and quantity for Australian wind turbines if substitutes from overseas are imported into Australia at a more competitive price? Draw this on the diagram.
- Read these two articles and using your new knowledge explain what happened.
Share your understanding
Let's debate and discuss:
Market solutions can lead to improved efficiency.
Market forces can lead to environmental problems such as pollution.
Which statement holds up to scrutiny? It's an economic showdown, prove your point.
Market solutions can lead to improved efficiency.
Market forces can lead to environmental problems such as pollution.
Which statement holds up to scrutiny? It's an economic showdown, prove your point.