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. A certain number of consumers will be willing to pay that price.
  • Law of Demand:
    • As the price of a good/service increases, the number of consumers willing to buy it decreases.
    • As the price decreases, the number of willing buyers increases.
    • Example:
      • If the video game price increases to 80, fewer customers will buy it.
      • If the price decreases to 40, more consumers will demand the game.
  • Factors Influencing Demand (at all price points):
    • Increased/decreased popularity of substitute products.
      • Example: A rival video game lowers demand for the original.
    • Changes in consumers’ incomes.
      • Example: If consumers get raises, they may be more willing to purchase the video game at 40, 60, or 80.
    • 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, even more for 60, and still more for 80.

Factors Influencing Supply (at every price)

• Changes that make production easier or more difficult.
  • Example: If the video game manufacturer develops a technology that speeds up production, it may be able to offer more games for sale for 40, 60, and 80.
  • 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.