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Definition of a Market:
is any place where goods and information are traded including, but not limited to, open air markets, stores, the Internet, and exchanges. Markets determine what is to be produced, how much is to be produced, and the price of a given product or service.
Buyers and sellers meet in the market to determine the price and quantity produced of a good or service. They reach an agreement when supply and demand are at equilibrium. Equilibrium
is the price at which the quantity suppliers are willing to produce equals the quantity buyers are willing to purchase. Producers (sellers) communicate through the supply curve, while consumers (buyers) use the demand curve when communicating in the market and negotiating a price. By reading the market supply curve, we learn how many units of a good or service producers would be willing to supply at any price. We also learn how many units of a good or service consumers would purchase at any price when we read the market demand curve. When consumers demand more for a good or service, the supplier’s response may be, “Sure, but you will need to pay more.” Conversely, a producer may build the fastest jet at a very high cost, and consumers may respond, “We are not willing to pay a price high enough to support this product.” For example, the Concorde was a supersonic jet. British Airways and Air France discontinued flights because of high maintenance costs and consumers’ unwillingness to pay the high price required for supersonic transport.
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Fundamental Economic Assumptions
Supply and Demand - Consumers and Producers Reach Agreement
Circular Flow Model - We Depend On Each Other