ECON 105 Lecture Notes - Lecture 2: Seat Belt, Invisible Hand, Mixed Economy
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Eg. higher gas prices = sales of hybrid cars rise. Higher cigarette taxes = # of people smoking decreases: application : seat belt laws. Result: little change in the number of driver deaths, increase in the number of pedestrian deaths: applications: rent control. Purpose - to help the poor by making housing more affordable: short run - rent control causes quantity of rental housing demanded to rise and quantity supplied to fall. There is a shortage of rental housing. Markets are usually a good way to organize economic activity: a market is a group of buyers and sellers of a particular good or service. Adam smoth and the invisible hand: individuals are motivated by self interest - the invisible hand guides this self-interest into promoting society"s economic well being. Works through the price system: the interaction of buyers and sellers determines prices, each price re ects the good"s value to buyers and the cost of producing the good.