– An institution or mechanism that brings buyers (aka demanders, consumers), and
sellers (aka suppliers, producers, firms, farms, fishermen, etc.) of particular resources together.
Ex. “Brick + mortar” stores, auctions, online auctions such as e-bay, online + mail order
shopping, whole sale + retail, discount outlets, farmers markets, garage sales, bazaars, TV sales
This section will develop the building blocks of a market.
To keep things simple initially, the
market is assumed to consist of a large number of buyers and sellers, i.e. the wheat market. We
will study less competitive markets at a later time.
schedule that shows the quantities that consumers are willing and able to purchase
at each alternative price, at a specific point in time.
Law of Demand
there exists an inverse
relationship between price (P) and quantity
Thus, if the P of a good falls, the Q
of the good rises and vice versa.
An Ordinary Downward Sloping Demand Function
Why is Demand Downward Sloping?
– people would like to buy more units at lower prices and vice versa.
Sort of a bargaining instinct, or an observed response to “sales” or “discounts”.
Diminishing Marginal Utility
– the consumer gets less and less additional
satisfaction from consuming equal additional units of the same good.
will purchase additional units only if the price fall.
Quantity can alter DMU because some people can have the same DMU for a certain
amount of DMU