3 - Demand and Supply: The Micro Side

Abstract

Exchange is the basic activity that takes place in the economy. Exchange produces numerous benefits. This chapter examines the economics of exchange from the perspective of markets. Every market has two sides: buyers and sellers. Many factors can influence demand. The quantity purchased depends on the price of the good in question, but it is also influenced by the income of buyers, the prices of other goods, tastes, preferences and styles, and a world of other factors. The demand curve holds all these factors fixed except price. The sellers' side of the market is called supply. Supply is a description of how sellers determine the amounts and kinds of goods to offer for sale. The supply curve shows the quantity supplied at every price. Many factors influence the amount that is offered for sale. The price of the good involved, the costs and availability of inputs, technology, and factors such as government regulations affect the amounts and kinds of goods offered for sale. When these underlying factors change, the supply curve shifts.