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IN THIS CHAPTER YOU WILL
4
THE MARKET FORCES OF S U P P LY A N D D E M A N D
Chapter Over view
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
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 determines 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 elasticity—the 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. Most instructors would argue that this chapter is the most important chapter in the text.
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
YOU SHOULD BE ABLE TO
List the two characteristics of a competitive market
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 economy’s resources.
List the determinants of the quantity demanded
Mar kets and Competition A market is a group of buyers and sellers of a particular good or service. It can be
4
THE MARKET FORCES OF S U P P LY A N D D E M A N D
Chapter Over view
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
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 determines 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 elasticity—the 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. Most instructors would argue that this chapter is the most important chapter in the text.
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
YOU SHOULD BE ABLE TO
List the two characteristics of a competitive market
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 economy’s resources.
List the determinants of the quantity demanded
Mar kets and Competition A market is a group of buyers and sellers of a particular good or service. It can be