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MARKET EFFICIENCY: The notion that a competitive market automatically achieves an efficient allocation of resources by equating demand price with supply price and quantity demanded with quantity supplied. Market efficiency relies on the self-correction process that eliminates shortages or surpluses. It also presumes that the market is competitive and is not subject to assorted market failures.

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Lesson 19: Money Creation | Unit 2: Fred Returns Page: 6 of 23

Topic: Currency <=PAGE BACK | PAGE NEXT=>

Our honest and trustworthy Fred discovers paper currency.

Fred's system:

  • Fred tracks gold deposits and withdrawals by issuing receipts for each deposit.
  • Fred returns the gold in exchange for a receipt.Three features:
  • First: The knight need not, and probably does not, withdraw the same gold deposited.
  • Second: Fred need not personally know each knight requesting services.
  • Third: Gold receipts are as good as gold, because people know the receipts can be redeemed for gold.Therefore:
  • Gold receipts become money for the local economy.
  • Fred has discovered paper currency, fiat money, and what is comparable to the checkable deposit function of modern banks.

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SEVEN ECONOMIC RULES

A set of seven fundamental notions that reflect the study of economics and how the economy operates. They are: (1) scarcity, (2) subjectivity, (3) inequality, (4) competition, (5) imperfection, (6) ignorance, and (7) complexity.

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Today, you are likely to spend a great deal of time touring the new suburban shopping complex wanting to buy either an AC adapter that won't fry your computer or a case for your designer sunglasses. Be on the lookout for telephone calls from former employers.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
"The greatest things ever done on Earth have been done little by little. "

-- William Jennings Bryan

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