Section 3
Interaction of Individuals, Firms, and Societies
Book
Version 3
By Boundless
By Boundless
Boundless Economics
Economics
by Boundless
7 concepts
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Introducing the Firm
Firms allow an economy to operate more efficiently and reduce the transaction costs of coordinating production.
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Trade Leads to Gains
Producers and consumers trade because the exchange makes both parties better off.
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Thinking about Efficiency
An efficient market maximizes total consumer and producer surplus.
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The Function and Nature of Markets
In a free market, the price and quantity of an item are determined by the supply and demand for that item.
![Thumbnail](../../../../../../figures.boundless-cdn.com/21854/raw/dweight-loss-price-ceiling.jpg)
Markets are Typically Efficient
A perfectly competitive market with full property rights is typically efficient.
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Government Intervention May Fix Inefficient Markets
Governments can intervene to make a market more efficient when a market failure, such as externalities or asymmetric information, exists.
![Thumbnail](../../../../../../figures.boundless-cdn.com/19913/square/cular-flow-of-goods-income.jpg)
Full Economy Interactions
Variables that describe the full economy, such as GDP and unemployment, are determined by the decisions of individual economic actors.