Market-Based Economies Notes

Market-Based Economies

  • Definition of a Market: Any physical or virtual place where people exchange goods and services.
  • Market Economy: An economy where markets operate with minimal government interference, based on citizens' wants and needs.

Supply and Demand

  • Regulation: Exchanges between buyers and sellers are primarily regulated by supply and demand.
    • Demand: The number of consumers willing to purchase an item at various prices.
      • Example: A new video game is released at 60.Acertainnumberofconsumerswillbewillingtopaythatprice.</li></ul></li><li><strong>LawofDemand:</strong><ul><li>Asthepriceofagood/serviceincreases,thenumberofconsumerswillingtobuyitdecreases.</li><li>Asthepricedecreases,thenumberofwillingbuyersincreases.</li><li>Example:<ul><li>Ifthevideogamepriceincreasesto60. A certain number of consumers will be willing to pay that price.</li></ul></li> <li><strong>Law of Demand:</strong><ul> <li>As the price of a good/service increases, the number of consumers willing to buy it decreases.</li> <li>As the price decreases, the number of willing buyers increases.</li> <li>Example:<ul> <li>If the video game price increases to80, fewer customers will buy it.
      • If the price decreases to 40,moreconsumerswilldemandthegame.</li></ul></li></ul></li><li><strong>FactorsInfluencingDemand(atallpricepoints):</strong><ul><li>Increased/decreasedpopularityofsubstituteproducts.<ul><li>Example:Arivalvideogamelowersdemandfortheoriginal.</li></ul></li><li>Changesinconsumers’incomes.<ul><li>Example:Ifconsumersgetraises,theymaybemorewillingtopurchasethevideogameat40, more consumers will demand the game.</li></ul></li></ul></li> <li><strong>Factors Influencing Demand (at all price points):</strong><ul> <li>Increased/decreased popularity of substitute products.<ul> <li>Example: A rival video game lowers demand for the original.</li></ul></li> <li>Changes in consumers’ incomes.<ul> <li>Example: If consumers get raises, they may be more willing to purchase the video game at40, 60,or60, or80.
    • Changes in consumers’ tastes.
  • Supply: The number of goods a producer is willing and able to create and sell at various prices.

Law of Supply

  • As the price of a good/service increases, the number of items producers are willing to sell increases.
  • Higher prices mean higher profits.
    • The video game company will be willing to sell a certain number of video games for 40,evenmorefor40, even more for60, and still more for 80.</li></ul></li></ul><h4id="factorsinfluencingsupplyateveryprice">FactorsInfluencingSupply(ateveryprice)</h4><ul><li>Changesthatmakeproductioneasierormoredifficult.<ul><li>Example:Ifthevideogamemanufacturerdevelopsatechnologythatspeedsupproduction,itmaybeabletooffermoregamesforsalefor80.</li></ul></li> </ul> <h4 id="factorsinfluencingsupplyateveryprice">Factors Influencing Supply (at every price)</h4> <ul> <li>Changes that make production easier or more difficult.<ul> <li>Example: If the video game manufacturer develops a technology that speeds up production, it may be able to offer more games for sale for40, 60,and60, and80.
    • Example: If workers in the video game factory go on strike, the business will not be able to offer as many games for sale at any price point.