Markets Link Different Goods

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video

Concept description

Alex Tabarrok (reference below, video on right), describes how markets for different goods are linked to one another.

Tabarrok uses the example of how increases in the price of oil will affect the price of candy bars and of the construction of brick driveways:

“How does the price of oil affect the price of candy bars? When the price of oil increases, it is of course more expensive to transport goods, like candy bars. But there are other, more subtle ways these two markets are connected. For instance, an increase in the price of oil leads to an increase in demand for oil substitutes, like ethanol. And when the supply of oil falls, oil should shift to higher-valued uses. But, which uses? How do we decide where to use less oil? This brings us to the great economic problem: how to most effectively arrange our limited resources (scarcity of resources) to satisfy our needs and wants.”

CandyBarsBrickDriveways

Practice questions

From http://www.mruniversity.com/node/192285, accessed 1 May 2016.

  1. Let’s see if the forces of the market can be as efficient as a benevolent dictator. Since laptop computers are increasingly easy to build and since they allow people to use their computers wherever they like, an all-wise benevolent dictator would probably decree that most people buy laptops rather than desktop computers. This is especially true now that laptops are about as powerful as most desktops. Since it’s become much easier to build better laptop computers in recent years, laptop supply has increased. What does this do to the price of laptops?

Atlas topic, subject, and course

The Price System and Price Regulation (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, The Great Economic Problem (8-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/economic-problem-central-planning-70s-oil-crisis, accessed 1 May 2016.

Page created by: Ian Clark, last modified 1 May 2016.

Image: Alex Tabarrok, minute 0:14 of The Great Economic Problem (8-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/economic-problem-central-planning-70s-oil-crisis, accessed 1 May 2016.