1. Market Forces

2. Markets Bring Buyers (demanders) and sellers (suppliers) together
Stores
Stock Exchanges
Even Employment

3. Market Equilibrium Price where intensions of buyers and sellers match
Surplus and Shortage
Changes in in Supply or Demand shift the market equilibrium

4. Changes in Demand Preferences # of Buyers Incomes
Price of related good
Substitute good
Complementary good
Consumer Expectation
Changes in Quantity demanded

5. Demand Shift

6. Determinants of Supply
Resource Prices
Technology
Taxes and Subsidies
Prices of other goods
Substitution in production
Producer Expectations
Number of Sellers

7. Supply Shift

8. Competition and efficiency
Productive efficiency- produce at lowest cost
Allocative efficiency- produce what is valued by consumers
Disequilibrium- adjustment period

9. Application: Government Set Prices
Price Ceiling
Rationing
Black Markets Fill gaps
Rent Control
Price Floor

10. Comparing Behavioral Economics with Neoclassical Economics
Focusing on the mental process behind decisions
Improving outcomes by improving decision- making
Behavioral economics puts significant emphasis on the mental process driving behavior. Improving outcomes by improving decisions is one of the distinguishing characteristics of behavioral economics.
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11. Bounded Rationality and willpower
Bounded rationality- limits on information people can comprehend and act on
Limited willpower- limited self discipline in following through with decisions in their own self interest

12. Neoclassical Economics
People have stable preferences that aren’t affected by context
People are eager and accurate calculating machines
People are good planners who possess plenty of willpower
People are almost entirely selfish and self- interested
Rationality is the most fundamental point of disagreement between behavioral economics and neoclassical economics. Neoclassical economics makes a number of highly unrealistic assumptions about human capabilities and motivations.
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