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HEDGING: Buying or selling futures contracts to protect against price changes. This is a common form of "insurance" used by those who produce various commodities, such as wheat, cattle, coffee, and natural gas, as well as those who buy these commodities as inputs.

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Lesson 7: Market | Unit 1: The Exchange Page: 3 of 22

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

Competition (especially our fourth rule of competition) brings out the best among buyers and sellers, that is, efficient use of resources.
  • Competition among sellers forces them to supply the most wanted products at the lowest resource cost.
  • Competition among buyers forces them to spend their limited incomes on the most satisfying goods.
  • Less competition among sellers than among buyers lets the sellers charge higher prices.
  • Less competition among buyers than among sellers lets the buyers pay lower prices.

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ASYMMETRIC INFORMATION

Information is not equally available to everyone. Asymmetric information results because efficient information search inevitably stops short of compete information. Some people obtain more benefits from information than others, are willing to incur higher search costs, and thus end up knowing more. Or they incur lower information search costs and have easier access to the information. In a market, sellers tend to have more information about the good than buyers. Asymmetric information gives rise to adverse selection, moral hazard, and the principal-agent problem. These problems can be lessened through signalling and screening.

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Today, you are likely to spend a great deal of time browsing through a long list of dot com websites seeking to buy either a looseleaf notebook binder or hand lotion, a big bottle of hand lotion. Be on the lookout for jovial bank tellers.
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The 1909 Lincoln penny was the first U.S. coin with the likeness of a U.S. President.
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