The Market Forces of Supply and Demand
Markets and Competition
Market: a group of buyers and sellers of a particular good or service.
Buyers/sellers as a group determine the demand/supply of the product.
Competitive market: a market in which there are many buyers and sellers so that each
has a negligible impact of the market price.
Each seller has limited control over the price because others are selling similar
Perfectly competitive ex. wheat
• Goods offered for sale are exactly the same
• Buyers and sellers are so numerous that no single buyer or seller has any
influence over the market price.
♦ Price Takers
Monopoly ex. Cable
• One seller that sets the price.
Quantity demanded: the amount of a good that buyers are willing and able to purchase.
Law of demand: the quantity demanded of a good falls when the price of the good rises,
Demand schedule: a table that shows the relationship between the price of a good and
the quantity demanded.
Demand curve: graph of the relationship between the price of a good and the quantity
Market demand: sum of all the individual demands for a particular good or service.
Shifts of the demand curve occur from a change in the quantity demanded.
Increase/decrease in quantity demand---shift right/left of curve.
• No change in price
• Normal goods: when the demand for a good falls when income rises.
• Inferior goods: when the demand for a good rises when income falls.
Prices of Related Goods
• Substitutes: two goods for which an increase in the price of one leads to an
increase in the demand for the