Ch05-D%26S - Chapter5 Demand,Supply,andtheMarket...

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1 Chapter 5 Demand, Supply, and the Market  Equilibrium
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2 Introduction Specialization is what distinguishes every  wealthy society the world has ever known. The miracle of the market is that millions of  people globally manage to cooperate together  to produce the goods and services that we  enjoy.
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3 The Market -  Bids and Offers Markets are not necessarily physical places. They are mechanisms  which bring together buyers  and sellers, demanders and suppliers. A market is not a person, place or thing. It is a process  of competing bids and offers.
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4 The Market -  Bids and Offers When economists use the term supply and  demand  they are describing the market as a  process of competing bids and offers or  continual on-going negotiations among  individuals.
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5 The Basic Process D S 1000 $ 500 1,200 $700 800 $300 Supply and Demand in the Guitar Market Quantity of Acoustic Guitars Price
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6 The Basic Process D S 1000 $ 500 1,200 $700 800 $300 Supply and Demand in the Guitar Market Quantity of Acoustic Guitars Price A shortage of 400 guitars at $300
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7 The Basic Process D S 1000 $ 500 1,200 $700 800 $300 Supply and Demand in the Guitar Market Quantity of Acoustic Guitars Price A surplus of 400 guitars at $700
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8 Competition, Cooperation and  Market Clearing Competition, like cooperation, is keen  throughout the market process. Rather than competition between buyer and  seller: Buyers tend to compete with other buyers Sellers tend to compete with other sellers.
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9 Competition, Cooperation and  Market Clearing In the case of a shortage, buyers compete with  one another by offering higher prices, and the  bidding process eliminates the shortage. In the case of a surplus, sellers compete  amongst themselves by trying to attract  customers and move excess inventories. Each seller would compete with lower prices until  the surplus disappears.
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10 Competition, Cooperation and  Market Clearing With individual buyers bidding up prices when  there are shortages and sellers reducing prices  when there are surpluses, the market system,  through forces of supply and demand, settles  on a market clearing price. The clearing price is the equilibrium quantity   and price .
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11 The Basic Process D S 1000 $ 500 1,200 $700 800 $300 Supply and Demand in the Guitar Market Quantity of Acoustic Guitars Price The Market clears at $500
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12 Competition, Cooperation and  Market Clearing To say the market is clear is to say that there is  neither a shortage nor a surplus. Qd = Qs
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Ch05-D%26S - Chapter5 Demand,Supply,andtheMarket...

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