Chapter 4 Notes - Chapter 4 The Market Forces of Supply and...

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Chapter 4: The Market Forces of Supply and Demand Supply and demand are the forces that make economies work They determine the quantity of each good produces and the price at which it is sold Refer to the behavior of people as they interact with one another in competitive markets MARKETS AND COMPETITION What is Market? A market is a group of buyers and sellers of a particular good and service The buyers as a group determine the demand for the product The sellers determine the supply of the product Sometime markets are highly organized o Agricultural commodities Buyers and sellers meet at a specific time/place An auctioneer helps set prices and arrange sales More often markets are less organized o Buyers of ice cream don’t meet together at any one time o Sellers of ice cream are in different locations and offer somewhat different products What is Competition? Each buyer knows that there are several sellers from which to choose Each seller is aware that his product is similar to that offered by other sellers The price of ice cream and the quantity of ice cream, sold are not determined by any single buyer/seller Price and quantity are determined by all buyers/sellers as they interact in the market Competitive Market: a market in which there are many buyers and sellers so that each has a negligible impact on the market price Each seller of ice cream has limited control over the price because other sellers are offering similar products Assume markets are perfectly competitive o The goods offered for sale are all exactly the same o The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price o Because buyers and sellers must accept the price the market determines, they are said to be price takers At the market price, buyers can buy all they want and sellers can sell all they want Not all goods and services are sold in perfectly competitive markets Some markets have one seller and this seller sets the price o Called a monopoly o Local tv station may be a monopoly Residents of town may have one cable company from which to buy this service Some markets fall b/w the extremes of perfect competition and monopoly Perfectly competitive markets are the easiest to analyze because everyone participating in the market takes the price as given by market conditions
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DEMAND The Demand Curve: The Relationship b/w Price and Quantity Demanded
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