Institutions of the Market: Private property Freedom of enterprise Freedom of choice Competition Specialization Use of money Limited governmentMoney facilitates trades when wants do not coincide.Look @ the circular flow diagram in Figure 2.2 in the textbook. (hydraulic diagram)Specialization: To have comparative advantage is to be able to produce something at a lower opportunity cost than something else. - In a two-good world, fi one producer has a comparative advantage in one good, the other producer has a comparative advantage in the other. Specialization is the concentration of productive effort in goods in which the producer has comparative advantage. To benefit from specialization requires the existence of trade.C. 3: Demand, Supply, and Market EquilibriumDemand is the amount that consumers are willing and able to buy at a series of possible prices over a specified period of time.Ceteris Paribus: price and quantity demanded are inversely related. If something costs more, then less quantity is demanded. Vice Versa.Income effect means that if price falls, purchasing power increases; like an increase in income.Substitution effect means that buyer will substitute more into good if its price falls.Change in demand is caused by change in determinant of demand (demand shifter)Demand shifters are tastes, number of buyers, income, price of related goods, expectations