Changes

As a student astutely suggested last class, economics is the study of the '''''transfer''''' of goods and services.  The first obvious question is this: what determines the '''''price''''' and '''''quantity''''' of goods transferred?  In other words, how much must a buyer pay for the good (the price), and how many units of the good (the quantity) will the seller be able to sell at that price?

As a student astutely suggested last class, economics is the study of the '''''transfer''''' of goods and services.  The first obvious question is this: what determines the '''''price''''' and '''''quantity''''' of goods transferred?  In other words, how much must a buyer pay for the good (the price), and how many units of the good (the quantity) will the seller be able to sell at that price?

Let's take an example.  Suppose you own a candy store, and you sell chocolate candy bars.  What price should you use for those candy bars?  If you sell them for $1 each, many people will buy them.  But if you charge $5 per candy bar, fewer will buy them at that price.  Your quantity of goods sold will be much less.  If, on the other hand, you sell the candy bars for only 10 cents per bar, you'll sell out quickly as people rush to buy the bars at that low price (perhaps to resell the bars at a higher price and make a profit themselves).  It might seem like you'd be happy at selling so many, but you make much less money overall at 10 cents per bar than at $1 per bar.  So you're worse off if you set the price at only 10 cents per bar, because you receive too little for each bar, and you're worse off if you set the price at $5 per bar, because you sell too few bars.  The best price for you to use for the candy bars is around $1 per bar.

Let's take an example.  Suppose you '''''own''''' a candy store, and you sell chocolate candy bars.  What price should you use for those candy bars?  If you sell them for $1 each, many people will buy them.  But if you charge $5 per candy bar, fewer will buy them at that price.  Your quantity of goods sold will be much less.  If, on the other hand, you sell the candy bars for only 10 cents per bar, you'll sell out quickly as people rush to buy the bars at that low price (perhaps to resell the bars at a higher price and make a profit themselves).  It might seem like you'd be happy at selling so many, but you make much less money overall at 10 cents per bar than at $1 per bar.  As the candy store owner you're worse off if you set the price at only 10 cents per bar, because you receive too little for each bar, and you're worse off if you set the price at $5 per bar, because you sell too few bars.  The best price for you to use for the candy bars is around $1 per bar.

The above analysis applies to the sale of a good (a candy bar), and the same analysis applies to the sale of services (such as a car mechanic selling his car repair services).  People sell their time as much as they sell what they own.  In this sense, "'''''time is money'''''" because time can be converted into money by spending that time working.  You could take convert 8 hours of time into about $60 by working at McDonalds, for example.

The above analysis applies to the sale of a good (a candy bar), and the same analysis applies to the sale of services (such as a car mechanic selling his car repair services).  People sell their time as much as they sell what they own.  In this sense, "'''''time is money'''''" because time can be converted into money by spending that time working.  You could convert 8 hours of time into about $60 by working at McDonalds, for example.

We could spend the remainder of this course on pricing goods and services.  Millions of businesses succeed or fail based on how they price their goods or services.  Thousands of people affect the pricing of a good or service, so this question is not as simple as it looks.  Assumptions have to be made in order to draw conclusions.  In some cases, price behavior baffles even the greatest experts in the field.

We could spend the remainder of this course on pricing goods and services.  Millions of businesses succeed or fail based on how they price their goods or services.  Thousands of transactions affect the pricing of a good or service, so this question is not as simple as it looks.  Assumptions have to be made in order to draw conclusions.  In some cases, price behavior baffles even the greatest experts in the field.

== Price of Stocks ==

== Price of Stocks ==

Stock prices on the New York Stock Exchange and NASDAQ (the stock exchange for new and often high-tech companies) are determined entirely by the “bid” and “ask” prices of the buyers and sellers.  Someone will “bid” a certain amount to buy a stock, and a seller will “ask” for a certain price.  When the bid and ask amounts equal, then a sales transaction occurs.  Prices can move very quickly and unpredictably when millions of people are involved.  When the overall trend of most stocks from day-to-day is an increase in their prices, then it is known as a "bull market"; when the overall trend of stocks from day-to-day decreases in price, then it is known as a "bear market."  You can remember that by thinking of how bears are scary, and stock markets that crash in price are scary things.

Stock prices on the New York Stock Exchange and NASDAQ (the stock exchange for new and often high-tech companies) are determined entirely by the “bid” and “ask” prices of the buyers and sellers.  Someone will “bid” a certain amount to buy a stock, and a seller will “ask” for a certain price.  When the bid and ask amounts equal, then a sales transaction occurs.  Prices can move very quickly and unpredictably when millions of people are involved.  When the overall trend of most stocks from day-to-day is an increase in their prices, then it is known as a "bull market"; when the overall trend of stocks from day-to-day decreases in price, then it is known as a "bear market."  You can remember that by thinking of how bears are scary, and stock markets that crash in price are scary things.

As explained above, the price that a stock trades on the exchange is where the “supply” by sellers equals the “demand” by buyers.  When a seller of stock asks too high a price, then there are no buyers and the stock does not trade.  When a buyer of stock offers too little a price, then there are no sellers and the stock does not trade.  The transaction (trade) occurs only when SUPPLY EQUALS DEMAND.   

As explained above, the price that a stock trades on the exchange is where the “supply” by sellers equals the “demand” by buyers.  When a seller of stock asks too high a price, then there are no buyers and the stock does not trade.  When a buyer of stock offers to pay too little a price, then there are no sellers at that low price and the stock does not trade.  The transaction (trade) occurs only when SUPPLY EQUALS DEMAND.   

This important principle of "supply and demand" is the most basic concept in all of economics.  Let's discuss it further.

This important principle of transactions occurring where "supply meets demand" is the most basic concept in all of economics.  Let's discuss it further.

==Supply and Demand==

==Supply and Demand==