Throughout reading the first four chapters, I realized that every single roll (component) and system has to be balanced in order to form the market, the economy. So to create a market, something has to be produced to sell, and somebody has to purchase what has produced. Before producing a product, one must resolve three critical questions about the use of its scarce resources: What, how, and for whom to produce. Then to produce a product, first basic four factors are need: Land, Labor, Capital, and Entrepreneurship.
In chapter 2, I learned about U.S. economy. Most of America's output consists of consumer goods and services. Over 70 percent consists of services. Government intervenes in the economy to establish the rules of the market game and to correct the market's answers to the WHAT, HOW, and FOR WHOM questions. The risk of government failure spurs the search for the right mix of market reliance and government regulation.
Incomes are distributed very unequally among households, with households in the highest income class receiving 15 times more income than the average low-income household.
Supply and demand are important market transaction. Every market transaction involves an exchange and thus some element of both supply and demand. A demand exists only if someone is willing and able to pay for the good. Demand is an expression of consumer buying intentions, of a willingness to buy, not a statement of actual purchases. Market supply is an expression of sellers' intentions, of the ability and willingness to sell, not a statement of actual sales.
Utility refers to the satisfaction we get from consumer goods and services. Total utility refers to the amount of satisfaction associated with all consumption of a product. Marginal utility refers to the satisfaction obtained from the last unit of a product.
If demand is elastic, a price increase will reduce total revenue. Price and total revenue move in the same direction only if demand is inelastic.
Advertising seeks to change consumer tastes and thus the willingness to buy.