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{{Economics_Lectures}}

One miracle is mentioned in all four Gospels of the Bible: the multiplication of the loaves and fish by Jesus to feed the crowd of thousands.  It illustrates God easily '''''overcoming''''' a scarcity in food.  Similarly, the devout Puritans overcame scarcity and created wealth under harsh conditions in New England in the early 1600s.  Apparently scarcity is a bigger problem in the absence of God.

<br>{{Economics_Lectures}}

One miracle is mentioned in all four Gospels of the Bible: the multiplication of the loaves and fish by Jesus to feed the crowd of thousands.  It illustrates God easily '''''overcoming''''' a scarcity in food.  Similarly, the devout Puritans overcame scarcity and created wealth under harsh conditions in New England in the early 1600s.  Scarcity is no problem for God, but it can be a huge problem for those who turn away from God.

Economics is the study of the '''''transfer''''' of goods and services.  What determines the '''''price''''' and '''''quantity''''' of goods transferred?  How much must a buyer pay in order to acquire the good (the price), and how many units of the good (the quantity) will the seller be able to sell at that price?

Economics is the study of the '''''transfer''''' of goods and services.  What determines the '''''price''''' and '''''quantity''''' of goods transferred?  How much must a buyer pay in order to acquire the good (the price), and how many units of the good (the quantity) will the seller be able to sell at that price?

:Airfares, when adjusted for inflation, have fallen 25 percent since 1991, and ... are 22 percent lower than they would have been had regulation continued. Since passenger deregulation in 1978, airline prices have fallen 44.9 percent in real terms according to the Air Transport Association. ...  [W]hen figures are adjusted for changes in quality and amenities, '''passengers save $19.4 billion dollars per year from airline deregulation'''.  

:Airfares, when adjusted for inflation, have fallen 25 percent since 1991, and ... are 22 percent lower than they would have been had regulation continued. Since passenger deregulation in 1978, airline prices have fallen 44.9 percent in real terms according to the Air Transport Association. ...  [W]hen figures are adjusted for changes in quality and amenities, '''passengers save $19.4 billion dollars per year from airline deregulation'''.  

As the above example illustrates, the free market lowers costs for the poor.  Wal-Mart is another example of this, as it provides goods at lower and lower prices for everyone.  This is very helpful to the poor.  Someone can have no money, or lose all his money, and yet if he tries then he can live nearly as well as the wealthiest man in the nation -- '''''if''''' the free market exists to drive down prices and provide equal opportunity.  Where the free market does not exist -- as in many countries of the world -- then the poor may go hungry and otherwise suffer, because prices are too high and opportunities are too limited for the poor to improve their lives.  Thus one of the best ways to help the poor is to provide them with the free market in order to lower prices and increase opportunities for them.

The above analysis was written five or more years ago.  Airline fares have fallen even more since then.  That is because the free market lowers costs for everyone.  Poor people can buy airline tickets now, when they could not before.   

The free market can have a politically beneficial effect also.  The free market is a powerful force against tyranny.  Government cannot easily control and limit free market supply and demand -- as discussed above, not even all the king's horses and all the king's men, and all the church authorities, could stop the Tyndale Bible.

Wal-Mart is another example of this, as it provides goods at lower and lower prices for everyone.  This is very helpful to the poor.  Someone can have no money, or lose all his money, and yet if he tries then he can live nearly as well as the wealthiest man in the nation -- '''''if''''' the free market is allowed to exist to drive down prices and provide equal opportunity.  Where the free market does not exist -- as in many countries of the world -- then the poor may suffer, because prices are too high and opportunities are too limited for the poor to improve their lives.  Thus one of the best ways to help the poor is to provide them with the free market in order to lower prices and increase opportunities for them.

So the next time you're flat broke without any job and facing a hopeless economic situation, remember this:  you still have the free market, the most powerful tool of all.  Put it to work for you.  The free market is a hardworking servant.

 

So the next time you're flat broke without any job and facing a hopeless economic situation, remember this:  in the United States you still have the free market on your side, the most powerful tool of all.  Put it to work for you.  The free market is a hardworking servant.

== What Supply and Demand Are '''''Not''''' ==

== What Supply and Demand Are '''''Not''''' ==

“Equilibrium” is “where things are going” or where they have already arrived.  Economic equilibrium is when all the imbalances in the forces of selling and buying have disappeared and a perfect balance between the sellers' desire to make more money (that's like hunger) and the buyers' desire to pay as little as possible (that's like not eating).  When the market has reached a balance between these two powerful, opposing forces, then it is equilibrium.  The opposing forces of the sellers trying to make money and the buyers trying to keep money are what "drive" the price to its equilibrium level, like a tug of war.   

“Equilibrium” is “where things are going” or where they have already arrived.  Economic equilibrium is when all the imbalances in the forces of selling and buying have disappeared and a perfect balance between the sellers' desire to make more money (that's like hunger) and the buyers' desire to pay as little as possible (that's like not eating).  When the market has reached a balance between these two powerful, opposing forces, then it is equilibrium.  The opposing forces of the sellers trying to make money and the buyers trying to keep money are what "drive" the price to its equilibrium level, like a tug of war.   

When there is perfect competition in the sale of a good or service, then the equilibrium is when the marginal revenue to the seller (the extra dollar that he charges and receives as revenue) equals his marginal cost in producing the good (the extra dollar he paid to produce the good).  At that point the seller's marginal profit (the extra dollar that he can keep after paying his costs) has fallen to zero and he has no incentive to produce any more goods.  In other words, the supplier keeps producing more and more goods only until his marginal profit on each extra good falls to zero such that he does not make any more money by selling additional quantity.  The seller does not want his marginal revenue to fall below his marginal cost, because then he is losing money.

When there is perfect competition in the sale of a good or service, then the equilibrium is when the marginal revenue to the seller (the extra dollar that he charges and receives as revenue) equals his marginal cost in producing the good (the extra dollar he paid to produce the good).  At that point the seller's marginal profit (the extra amount that he can keep after paying his costs) has fallen to zero and he has no incentive to produce any more goods.  In other words, the supplier keeps producing more and more goods only until his marginal profit on each extra good falls to zero such that he does not make any more money by trying to sell additional quantity.  The seller does not want his marginal revenue to fall below his marginal cost, because then he is losing money.

Here is an example.  How long does the owner of a store keep it open at night?  As long as the flow of customers into his store pays him more money (marginal revenue) than it costs him to keep the store open (marginal costs).  As it gets later at night, the flow of customers declines, the owner makes less, and eventually his costs of keeping the store open will exceed the money that is being paid to him by customers.  As soon as the owner realizes that he is paying more to his workers to keep the store open than he is getting from customers, he closes his store for the night.  After a few weeks of this, the owner realizes that he usually makes money before a certain hour (perhaps 9pm), and loses money afterward.  Then he puts a sign on his door telling everyone that he closes at 9pm every night.  Marginal revenue exceeds marginal cost before 9pm for him (so he makes a marginal profit by staying open), while marginal costs exceed marginal revenue after 9pm (so he avoids losing money by closing).

Here is an example.  How long does the owner of a store keep it open at night?  As long as the flow of customers into his store pays him more money (marginal revenue) than it costs him to keep the store open (marginal cost).  As it gets later at night, the flow of customers declines, the owner makes less, and eventually his costs of keeping the store open will exceed the money that is being paid to him by new customers.  As soon as the owner realizes that he is paying more to his workers to keep the store open than he is getting from new customers, he closes his store for the night.  After a few weeks of this, the owner realizes that he usually makes money before a certain hour (perhaps 9pm), and loses money afterward.  Then he puts a sign on his door telling everyone that he closes at 9pm every night.  Marginal revenue exceeds marginal cost before 9pm for him (so he makes a marginal profit by staying open), while marginal costs exceed marginal revenue after 9pm (so he avoids losing money and closes his store for the night).

==Example: Health Care==

==Example: Health Care==

In the United States, under the free market, anyone can pay his own money for medical care at any time.  But in Canada, someone with an illness is typically put on a waiting list and, depending on his age and likelihood of survival, may not see a doctor for months.  In some cases, patients pass away before they obtain the treatment they need.  The Canadian government sets limits on wages and prices for medical care, and that causes shortages because there is always less supply when the price is artificially lowered by government control.  (Look again at the shape of the supply curve:  at lower P, there is lower Q).   

In the United States, under the free market, anyone can pay his own money for medical care at any time.  But in Canada, someone with an illness is typically put on a waiting list and, depending on his age and likelihood of survival, may not see a doctor for months.  In some cases, patients pass away before they obtain the treatment they need.  The Canadian government sets limits on wages and prices for medical care, and that causes shortages because there is always less supply when the price is artificially lowered by government control.  (Look again at the shape of the supply curve:  at lower P, there is lower Q).   

Lowering wages and prices prevents supply from rising to satisfy demand.  Then demand is much greater than supply, and patients have to wait a long time to see a doctor.  There is a lower survival rate for cancer in Canada than the United States because of the delays in diagnosis and treatment in Canada.  In Buffalo, which is on the Canadian border, doctors treat many Canadians who come over the border to pay for immmediate American medical care rather than wait for it in Canada.

Lowering wages and prices prevents supply from rising to satisfy demand.  Then demand is much greater than supply, and patients have to wait a long time to see a doctor.  There is a lower survival rate for cancer in Canada than the United States because of the delays in diagnosis and treatment in Canada.  In Buffalo, which is on the Canadian border, doctors treat many Canadians who come over the border to pay for immediate American medical care rather than wait for it in Canada.

This limiting of supply by government-set pricing causes what is known as "rationing".  More people want the service (a medical operation or treatment) than is available.  A waiting list is created to handle the surplus in demand over supply.  But when someone has a cancer growing inside of him, delay by being placed on a waiting list can be agonizing and deadly.  Quick treatment helps improve survival from cancer.  In the United States, where government does not set all prices and there is not any rationing yet, the survival rate for five common forms of cancer is over 90%.  Thanks to the powerful benefits of the free market, the rate of survival continues to improve in the United States.

This limiting of supply by government-set pricing causes what is known as "rationing".  More people want the service (a medical operation or treatment) than is available.  A waiting list is created to handle the surplus in demand over supply.  But when someone has a cancer growing inside of him, delay by being placed on a waiting list can be agonizing and deadly.  Quick treatment helps improve survival from cancer.  In the United States, where government does not set all prices and there is not any rationing yet, the survival rate for five common forms of cancer is over 90%.  Thanks to the powerful benefits of the free market, the rate of survival continues to improve in the United States.

2. Suppose the price demand curve for a particular good is P = $30 - Q, where P is the price and Q is the quantity.  Also suppose the price supply curve is P = $6 + Q.  At which price and quantity will the good be sold?

2. Suppose the price demand curve for a particular good is P = $30 - Q, where P is the price and Q is the quantity.  Also suppose the price supply curve is P = $6 + Q.  At which price and quantity will the good be sold?

3. When the '''''supply''''' of a good or service increases, such as increasing the number of oil wells, what happens to the market price of oil?  Explain.  When the '''''demand''''' for a good a good or service increases, such more people driving cars that need gasoline (refined oil), what happens to the market price of oil?  Explain.

3. When the '''''supply''''' of a good or service increases, such as increasing the number of oil wells, what happens to the market price of oil?  Explain.  When the '''''demand''''' for a good or service increases, such as more people driving cars that need gasoline (refined oil), what happens to the market price of oil?  Explain.

4. Why do grocery stores lower the price of their fruit (such as grapes) when they have an oversupply of ripened fruit?  Explain by citing the downward slope of a demand curve, and describe what happens to this fruit after the grocery store lowers its price.

4. Why do grocery stores lower the price of their fruit (such as grapes) when they have an oversupply of ripened fruit?  Explain by citing the downward slope of a demand curve, and describe what happens to this fruit after the grocery store lowers its price.

|$8

|$8

|300 (the low sales price => low supply)

|300 (the low sales price => low supply)

|1200 (the low sales prie => high demand)

|1200 (the low sales price => high demand)

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