Introduction to the Economics of Arts and Culture Summary

Introduction to the Economics of Arts and Culture – exam March 25th, 2016

Market economy  production and consumption are the result of individuals, firms,
etc.
Command economy  a central authority makes the decision about production and
consumption

Economic principles
 Scarcity
 Opportunity costs (the cost of your best alternative)
 Marginal decision making (comparing costs and benefits)
 Individuals respond to incentives (make it easier for themselves)
 Gains from trade
 Markets move towards equilibrium
 Resources should be used efficiently
 Markets lead to efficiency
 Government can improve market by intervention
 “Miracle of the Market” + Externalities (uncoordinated actions lead to
beneficial outcomes in society)

Competitive market: Many buyers and sellers of the same goods or services, both
unable to influence the price
 Behavior described in model of supply and demand
Demand curve: Hypothetical relation between price and demand
Supply curve: (High prices? Suppliers will want to join, and vice versa)




What shifts the demand curve?
- Variables outside model (trends, scarcity)
- Changes in prices of related goods (substitutes or compliments)
- Changes in income
- Changes in taste
- Changes in expectations (time variable, threat of recession)
- Changes in market (number of consumers, population growth)

What shifts the supply curve?
- Changes in input prices (goods used in production process, e.g. labor,
material)
- Changes in technology (substitution)
- Changes in expectations (of prices of other goods, or economic circumstances)
- Number of suppliers