Recall from Chapter 2 that a market is an institution or mechanism that brings together buyers ("demanders") and sellers ("su liers") of articular goods, services, or resources for the ur ose of exchange. Markets exist in many forms. The corner gas station, e-commerce sites, the local music store, a farmer's roadside stand—all are familiar markets. The Toronto Stock Exchange and the Chicago Board of Trade are markets where buyers and sellers of stocks and bonds and farm commodities from all over the world communicate with one another to buy and sell. Auctioneers bring together potential buyers and sellers of art, livestock, used farm equipment, and, sometimes, real estate. In labour markets, the professional hockey player and his agent bargain with the owner of an NHL team. A graduating finance major interviews with the Canadian Imperial Bank of Commerce or Scotiabank at the university placement office.
All situations that link potential buyers with potential sellers are markets. Some markets are local, while others are national or international. Some are highly personal, involving face-to-face contact between demander and supplier; others are impersonal, with buyer and seller never seeing or knowing each other.
To keep things simple, we will focus in this chapter on markets consisting of large numbers of buyers and sellers of standardized products. These are the highly competitive markets such as a central grain exchange, a stock market, or a market for foreign currencies in which the price is "discovered" through the interacting decisions of buyers and sellers. They are not the markets in which one or a handful of producers "set" prices, such as the markets for commercial airplanes or operating software for personal computers.
schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time.
Recall from Chapter 2 that the economic problem consists of unlimited wants and limited resources to produce the goods and services to satisfy those wants. We begin now to take a closer look at the nature of wants, or demand. Later in the chapter we will investigate the nature of supply.
Demand is a schedule or a curve that shows the various amounts of a roduct that consumers are willing and able to urchase at each of a series of ossible rices during a s eci-fied eriod of time.1 Demand shows the quantities of a product that will be purchased at various possible prices, other things equal. Demand can easily be shown in table form. Table -1 is a hypothetical demand schedule for a single consumer purchasing bushels of corn.
Table -1 reveals the relationship between the various prices of corn and the quantity of corn a particular consumer would be willing and able to purchase at each of these prices. We say willing and able because willingness alone is not effective in the market. You may be willing to buy a Porsche, but if that willingness is not backed by the necessary dollars, it will not be effective and, therefore, will not be reflected in the market. In Table -1, if the price of corn was $5 per bushel, our consumer would be willing and able to buy 10 bushels per week; if it was $4, the consumer would be willing and able to buy 20 bushels per week; and so forth.
1This definition obviously is worded to apply to product markets. To adjust it to apply to resource markets, substitute the word "resource" for "product" and the word "businesses" for "consumers."
chapter three individual markets: demand and supply
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