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AP®︎/College Microeconomics
Course: AP®︎/College Microeconomics > Unit 2
Lesson 1: Demand- Markets and property rights
- Law of demand
- Deriving demand curve from tweaking marginal utility per dollar
- Market demand as the sum of individual demand
- Substitution and income effects and the law of demand
- Markets, property rights, and the law of demand
- Price of related products and demand
- Change in expected future prices and demand
- Changes in income, population, or preferences
- Normal and inferior goods
- Inferior goods clarification
- Change in demand versus change in quantity demanded
- Demand and the determinants of demand
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Markets and property rights
In order for markets to function effectively, property rights must be clear. In this video, we explore the idea of property rights, and why they matter in markets and how they affect individual incentives. We describe some of the conditions that are necessary for a properly and efficiently operating market to exist, including how exclusivity, enforceability, and transferability of property rights are essential for a properly functioning market.
Want to join the conversation?
- So property rights are laws regarding the protection of ownership of private assets?(9 votes)
- How about intellectual property? Are they also exclusive, enforceable and transferable?(3 votes)
- Intellectual property laws, depending on country, effect whether they are exclusive or enforceable or transferable. Research Intellectual property laws for your state or country's government to see.(5 votes)
- Does a socialist or communist state not have any property rights then? Or do all property rights go to the state?(4 votes)
- No. Socialism and communism are about workers controlling the means of production, with the assistance of the state, not the government controlling private property, citizens would still own their guns and baseball bats and shampoo, the government would supervise over collective ownership of the means of production.(0 votes)
Video transcript
- [Instructor] In other
videos, we have touched on the idea of property
rights, but in this video, we're going to go a little bit deeper, and think about how
property rights connect to the notion of a market. So, first of all, think about
what a market means to you. You have probably heard of
things like the stock market or you have probably gone to a supermarket to do your groceries. What's common about these things? Well, if we wanna say
as broad of a definition of a market, you could
view it as a market forms, let me write this down. Well, this is an informal definition. Forms, when multiple parties, multiple parties, exchange things of value. Exchange things of value. And let's see whether our
notions of a market hold up or whether this definition
holds up when we think about our notions of a market. Well in a stock market, you
have a bunch of people together, and they are trading stocks,
and usually what happens is, let's see if this is a
stock right over here, these are all different
shares of the same stock or different stocks,
what typically happens is if there might be parties
who want to sell this stock and then there's other parties
who want to buy this stock and then whoever of the
buyers is willing to offer the most for that share,
well then that money will go to the seller of the
stock and then that stock will go to the party that
just paid that amount. And so you see that there's an
exchange of things of value. At a supermarket, you will see
aisles and aisles of goods. This is my drawing of a aisle of goods, and there's all sorts
of merchandise on 'em and you put 'em in your shopping cart and then when you're done,
you go to the checkout, this is my little shopping cart here. You go to the checkout
and you pay for them. So once again, you are
picking which items you want. There's a price on them, so
the seller which in this case is the supermarket, tells you
what they're willing to take for those items and then when
you put them in your cart and then take it to the
checkout, that's you agreeing to pay those prices and so
you exchange, once again, money for those things of value. So the money has value
and those groceries, whatever you're buying, might have value. Now, we tend to believe that
markets are the best way of allocating resources
and different markets work different ways. As you could just see,
the stock market could be very different than a supermarket and then you could have an auction where things are auctioned off. That would also be a form of a market but the actual mechanics
of how things happen would be a little bit different. But a key factor that you
need in order for markets to function properly is
that you need to have a notion of property rights,
and as we've talked about in previous videos,
property rights are the idea that things can be owned. Now what does it mean to own something? We almost just take this for granted but it's not some law of the universe, it's something that we
just assume culturally and it's become so embedded
in us that we just say of course you can own something
but at the end of the day, there's three real properties
to owning something. One is the idea of a party being able to
exclusively own something. So let's say that you own a piece of land that you want to farm on. Well that means that
you can exclude others from using that land and
whatever that land produces. It might just be a fun
place for you to run around or sunbathe or it might be a
place where you grow some food that you have the rights to
the benefits of that thing. Now another key dimension
of property rights is that those rights
have to be enforceable. Enforceable. What does that mean? Well, if someone obnoxious wants to come and sunbathe on your property
that you have enjoyed running around and
sunbathing on, you say hey, you're infringing on my property rights and you should be able to call the police or some type of enforcers
to take that person off your land if you really
do have property rights and if they are truly exclusive. Or let's say you have
property rights on your shoes and if someone were to steal your shoes, you should be able to
call the police and say a crime has been committed and the police should enforce those property rights. They should go and get those shoes back and punish that shoe stealer in some way and then last but not
least, in order for markets to work well, those property rights have to be transferrable. Remember, a market is
all about transferring property rights. In the stock market, one party is giving, is transferring their
property rights to that money to the seller of the stock
in exchange for getting the seller of the stocks property rights to the actual stocks. If this was not transferrable,
then it would actually make no sense to have a market as we know it. So I'll leave you there. These are things in our daily life that most of us take for granted because we live in a market economy and we are used to things like ownership but there are definitely
ways of organizing society where it's not as based
on markets in terms of who gets what and even
today, markets in many sectors or in many parts of the
world don't operate as well as they could because
some of these dimensions of property rights aren't
working as properly as they should. It might be hard to
transfer property rights in certain markets. In certain markets, if someone, let's say, just takes over a property, the government might not be so good at enforcing those property rights. Or it might be hard to keep one party from using something of value that is, at least according to the property rights, owned by someone else.