66PART TWOSUPPLY AND DEMAND I: HOW MARKETS WORKsupply and demand determine prices in a market economy and how prices, inturn, allocate the economy’s scarce resources.MARKETS AND COMPETITIONThe terms supplyand demandrefer to the behavior of people as they interact withone another in markets. Amarketis a group of buyers and sellers of a particulargood or service. The buyers as a group determine the demand for the product, andthe sellers as a group determine the supply of the product. Before discussing howbuyers and sellers behave, let’s first consider more fully what we mean by a “mar-ket” and the various types of markets we observe in the economy.COMPETITIVE MARKETSMarkets take many forms. Sometimes markets are highly organized, such as themarkets for many agricultural commodities. In these markets, buyers and sellersmeet at a specific time and place, where an auctioneer helps set prices and arrangesales.
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