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Robert L.Sexton “Exploring Economics”



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Robert L.Sexton “Exploring Economics”
Chapter 4: Supply and Demand
4.1 Markets
A market is the process of buyers and sellers exchanging goods and services.
The conditions under which exchange occurs between buyers and sellers vary, and these varying conditions make it difficult to precisely define a market.
Goods being priced and traded at various locations by various kinds of buyers and sellers further compound the problem of defining a market. Some markets are but numerous but limited in area, others are global.
The important point about a market is not what it looks like, but what it does--it facilitates trade.
Buyers, as a group, determine the demand side of the market, whether it is consumers purchasing goods or firms purchasing inputs. Sellers, as a group, determine the supply side of the market, whether it is firms selling their goods or resource owners selling their inputs.
We focus on how supply and demand, working in a competitive market, with a large number of buyers and sellers, where no single buyer or seller can influence the market price.
4.2 Demand
According to the law of demand, the quantity of a good or service demanded varies inversely (negatively) with its price, ceteris paribus. Other things equal, when the price of a good or service falls, the quantity demanded increases.
An individual demand schedule shows the relationship between the price of a good and an individual’s quantity demanded other things equal.
Exhibit 1: Elizabeth’s Demand Schedule for Coffee
An individual demand curve for a particular good illustrates the same information as the individual demand schedule. It reveals the relationship between the price and the quantity demanded, showing that when the price is higher, the quantity demanded is lower.
Exhibit 2: Elizabeth’s Demand Curve for Coffee

Economists usually speak of the demand curve in terms of large groups of people. The horizontal summing of the demand curves of many individuals is called the market demand curve for a product. It reflects the fact that the total quantity purchased in the market at a price is the sum of the quantities purchased by each demander.
Exhibit 3: Creating a Market Demand Curve
The market demand curve shows the amounts that all the buyers in the market would be willing to buy at various prices.
Exhibit 4: A Market Demand Curve

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