94 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK applying the most basic tools of economics—supply and demand—to the market for wheat. The previous chapter introduced supply and demand. In any competitive market, such as the market for wheat, the upward-sloping supply curve represents the behavior of sellers, and the downward-sloping demand curve represents the behavior of buyers. The price of the good adjusts to bring the quantity supplied and quantity demanded of the good into balance. To apply this basic analysis to understand the impact of the agronomists’ discovery, we must first develop one more tool: the concept of elasticity. Elasticity, a measure of how much buyers and sellers respond to changes in market conditions, allows us to analyze supply and demand with greater precision. THE ELASTICITY OF DEMAND When we discussed the determinants of demand in Chapter 4, we noted that buy-ers usually demand more of a good when its price is lower, when their incomes are
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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.