MARKETS, DEMAND, AND SUPPLY

MarketsThe role of the market•determining solutions to the economic problemThe economic problem is the unlimited wants that consumers have with limited resources available. Three questions need to be asked when determining a decision, which are 'what to produce?', 'how to produce?' and 'who will receive the goods and services?'•the importance of relative price in reflecting opportunity costs in the goods and services and factor marketsThe market price paid by consumers for goods and services reflect opportunity costs. Markets for productive resources (natural, human and capital), known as factor markets, determine the opportunity costs of productive resources. Market price can also be used to help determine the best way to allocate scarce resources.

Demand and supplyDemand (demand is the willingness to buy coupled with the ability to buy it. Goods that are demanded must give satisfaction (or utility))•law of demand- the lower the product's price, the greater the quantity that people will buy, assuming ceteris paribus.

price of market balance

The illustration that accompanied Marshall's origi...

Perfectly inelastic demand

individual demand- a demand by individuals for goods and servicesmarket demand- demand by all consumers for a particular good or service.

the demand curve- shows the relationship between prices, quantity and demand for a product in a graphical form.

•factors affecting demand:Price- generally the higher the price, the lower the demand for a good or serviceIncome- the higher the income, the more an individual/household can consumePopulation- a growing population means there are more potential consumersTastes- influences what the consumer wants to buyprices of substitutes and complements- a substitute is a product that could be used in place of another, a complement is a good that is used in conjunction with another.

expected future prices- if prices are expected to decrease, consumers may choose to delay the purchase for the good, as it reduces opportunity costs. However, if prices are expected to increase, consumers may purchase...