66 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK supply and demand determine prices in a market economy and how prices, in turn, allocate the economy’s scarce resources. MARKETS AND COMPETITION The terms supply and demand refer to the behavior of people as they interact with one another in markets. A market is a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product. Before discussing how buyers 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 MARKETS Markets take many forms. Sometimes markets are highly organized, such as the markets for many agricultural commodities. In these markets, buyers and sellers meet at a specific time and place, where an auctioneer helps set prices and arrange sales. More often, markets are less organized. For example, consider the market for
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.