All goods and services are subject to scarcity at some level, which requires that society develop some allocation mechanism to determine who gets what. Over recorded history, these allocation rules were usually command based, meaning that the king or the emperor would decide. In contemporary times, most countries have turned to market-based allocation systems. In markets, prices act as rationing devices, encouraging or discouraging production and encouraging or discouraging consumption to find an equilibrium allocation of resources. To understand this process, businesses construct demand curves to capture consumer behavior and consider supply curves to capture producer behavior. The resulting equilibrium price “rations” the scarce commodity.
You will be able to:
• Describe consumer behavior as captured by the demand curve and producer behavior as captured by the supply curve
• Define equilibrium and explain the impact of taxes and price controls on market equilibrium
• Explain elasticity of demand
• Describe cost theory and how firms optimize given the constraints of their own costs and an exogenously given price
This course is part of Gies College of Business’ suite of online programs, including the iMBA and iMSM. Learn more about admission into these programs and explore how your Coursera work can be leveraged if accepted into a degree program at https://degrees.giesbusiness.illinois.edu/idegrees/.
You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.
Module 1: Scarcity, Allocation, and Markets
The fundamental problem of scarcity challenges us to think about an allocation mechanism to determine what is produced and who consumes it. We will discuss scarcity and allocation mechanisms. In this course, we will focus on markets and prices as the solution to this resource allocation problem.
Module 2: Government Intervention in Markets
Markets are frequent targets of governments. This module will introduce government policy intervention into the market. This intervention can be direct control of prices or it could be indirect price pressure through the imposition of taxes or subsidies. Both forms of intervention are impacted by elasticity.
Module 3: Firms, Production, and Costs
This module will introduce cost theory. Firms are interested in producing profits, which are the residuals when costs are subtracted from revenue. Earlier modules constructed demand curves. They give us an idea of how many units of product we can sell at different prices; this would be firm revenue. We will work to understand inputs, production, and costs.
Module 4: Firm Behavior
The firm goal of profit maximization requires an understanding of costs and revenues. In this module, we will see how a firm optimally responds to a given market price by finding the profit maximizing output. The level of profits at this maximum profit point will help determine short run equilibrium.