Unit 1 — Markets

Play Unit 1 - Markets

Purpose:

To show how a well-functioning free-market pricing system determines how producers manufacture goods, what goods will be manufactured, and for whom the goods will be produced.

Objectives:

  1. The meeting of buyers and sellers in a market can be represented by supply and demand curves. The curves show what sellers are willing to sell, and buyers are willing to buy, at various prices. In a perfectly operating market, the intersection of the supply and demand curves will be the point at which buyers and sellers agree on the price and quantity.
  2. Goods are produced by using resources such as labor, machinery, and materials. The prices of these resources are set by supply and demand in the free market. The producer is forced, by competitive pressures, to choose the method of production that is least costly, i.e., the method that conserves high-priced materials.
  3. Consumers “reveal” how much they want a good by the way they spend their money. If a great deal of money is being spent on a certain good, producers will try to make more of that good. If consumers change the way they spend their money, producers will respond.
  4. There is a difference between “need” and ”effective demand.” The market system only responds to those who have money to spend. The poor have the need for many goods that the free market system will not provide for them because the market system only responds to needs for which people spend money.

Audio and Transcripts

Meet the Series Experts

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Scott Boras

Scott Boras

Owner and President of the Boras Corporation, a sports agency that represents many of the highest-profile players in professional baseball.

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Robert W. Crandall

Robert W. Crandall

Senior Fellow in the Economic Studies Program of the Brookings Institution, specializing in telecommunications and cable television regulation, the effects of trade policy, environmental policy, and the changing regional structure of the U.S. economy.

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Kenneth Jackson

Kenneth Jackson

Jacques Barzun Professor in History and the Social Sciences at Columbia University, specializing in urban, social, and military history.

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WHAT’S YOUR
ECONOMICS IQ?

  1. Markets are BEST defined by...

    common interests of buyers and sellers.

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  2. According to a Rand Youth Poll, young people have an estimated $45 to $65 billion to spend. 83% help shop for food. 88% help decide where to eat out. What impact will they have on grocery and restaurant markets?

    Firms must produce what consumers desire in order to make a profit. Firms that ignore consumer demands cannot expect to remain in business long.

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  3. Which of the following is MOST LIKELY to increase the demand for hybrid or electric automobiles?

    The price of gasoline.

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  4. Markets are considered to be perfectly competitive when...

    there are so many sellers and buyers that none can affect prices.

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  5. If the ticket lines for a Washington Nationals baseball game wound around the block and scalpers were getting $200 above the box office price, you could assume that...

    box office prices were running below equilibrium.

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  6. If the price for a hot dog at the ballpark is $7.50, as shown on the graph below, then the price of hot dogs...

    chart chart

    Equilibrium is represented on the graph by the point at which the quantity demanded and quantity supplied intersect. Clearly, the actual price is currently well above this point.

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Glossary

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