This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 4 The Market Forces of Supply and Demand Goals In this ch a pt e r you will Learn what a competitive market is Examine what determines the demand for a good in a competitive market Examine what determines the supply of a good in a competitive market See how supply and demand together set the price of a good and the quantity sold Consider the key role of prices in allocating scarce resources in market economies Outcomes After a c c o m p lishin g thes e go als, you should b e abl e to List the two characteristics of a competitive market List the factors that affect the amount that consumers wish to buy in a market List the factors that affect the amount that producers wish to sell in a market Draw a graph of supply and demand in a market and find the equilibrium price and quantity Shift supply and demand in response to an economic event and find the new equilibrium price and quantity Chapter Overview Context and Purpose Chapter 4 is the first chapter in a three-chapter sequence that deals with supply and demand and how markets work. Chapter 4 shows how supply and demand for a good determine both the quantity produced and the price at which the good sells. Chapter 5 will add precision to our discussion of supply and demand by addressing the concept of elasticitythe sensitivity of the quantity supplied and quantity demanded to changes in economic variables. Chapter 6 will address the impact of government policies on prices and quantities in markets. The purpose of Chapter 4 is to establish the model of supply and demand. The model of supply and demand is the foundation for our discussion for the remainder of this text. For this reason, time spent studying the concepts in this chapter will return benefits to you throughout your study of economics. Many instructors would argue that this chapter is the most important chapter in the text. Chapter Review Introduction In a market economy, supply and demand determine both the quantity of each good produced and the price at which each good is sold. In this chapter, we develop the determinants of supply and demand. We also address how changes in supply and demand alter prices and change the allocation of the economys resources. Markets and Competition A market is a group of buyers and sellers of a particular good or service. It can be highly organized like a stock market or less organized like the market for ice cream. A competitive market is a market in which there are many buyers and sellers so that each has a negligible impact on the market price. A perfectly competitive market has two main characteristics: The goods offered for sale are all exactly the same....
View Full Document
This note was uploaded on 02/08/2011 for the course ECONOMICS 101 taught by Professor June during the Spring '08 term at Rutgers.
- Spring '08