88 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK QUICK QUIZ: Analyze what happens to the market for pizza if the price of tomatoes rises. ± Analyze what happens to the market for pizza if the price of hamburgers falls. CONCLUSION: HOW PRICES ALLOCATE RESOURCES This chapter has analyzed supply and demand in a single market. Although our discussion has centered around the market for ice cream, the lessons learned here apply in most other markets as well. Whenever you go to a store to buy something, you are contributing to the demand for that item. Whenever you look for a job, you are contributing to the supply of labor services. Because supply and demand are such pervasive economic phenomena, the model of supply and demand is a powerful tool for analysis. We will be using this model repeatedly in the following chapters. One of the Ten Principles of Economics discussed in Chapter 1 is that markets are usually a good way to organize economic activity. Although it is still too early to judge whether market outcomes are good or bad, in this chapter we have begun to
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