Tuesday, June 16, y Chapter 4 - The Market Forces of Supply and Demand Econ 10 - supply and demand are the forces that make market economies work - this chapter shows how supply and demand determine prices in a market economy and how prices, in turn, allocate the economy ’ s scarce resources 4-1 Markets and Competition 4-1a What Is a Market? - market - a group of buyers and sellers of a particular good or service - markets take many forms - there are highly organized markets - buyers and sellers meet at a specific time and place where an auctioneer helps set prices and arrange sales - there are less organized markets - for example how ice-cream sellers and ice-cream in town form a market 4-1b What is Competition? - competitive market - a market in which there are many buyers and many sellers so that each has a negligible impact on the market price - assume that markets are perfectly competitive therefore, (1) the goods offered for sale are all exactly the same, and (2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price - price takers - buyers are sellers in perfectly competitive markets must accept the price the market - monopoly - some markets only have one seller, and this seller sets the price - other markets fall between the extremes of perfect competition and monopoly 4-2 Demand 4-2a The Demand Curve: The Relationship between Price and Quantity Demanded - quantity demanded - the amount of a good that buyers are willing and able to purchase ser- vice - the price of the good plays a central role in how markets work - the higher the price the less you buy, the lower the price the more you buy - law of demand - the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises - demand schedule - a table that shows the relationship between the price of a good and the quantity demanded 1
Tuesday, June 16, y - demand curve - a graph of the relationship between the price a good and the quantity de- manded 4-2b Market Demand versus Individual Demand - market demand - the sum of all the individual demands for a particular good or service -
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- Fall '11