This section focuses on the interactions of markets with production, distribution systems, and consumers. The material presented is designed to help you meet the following objective.
- Identify and analyze the role of markets from production through distribution to consumption.
A market is any setting where goods, services, or resources are exchanged for money or traded. The role of the market is defined by two laws: the law of supply and the law of demand. In the study of economics, these laws apply whatever the arena: production, distribution, or consumption. They determine what will be produced, depending on available supplies for production and demand for the product, and how products are distributed (where are the markets for the product?). These laws can be expressed in the following way:
The Law of Supply - the quantity supplied is directly proportional to the price.
The Law of Demand - the quantity demanded is inversely proportional to the price.
The market includes consumers and producers, who together determine the price of a product. Prices affect what is produced, and who can afford what's produced. The demand side of the market relationship, or at least its study, begins with a single consumer (Supply, par. 7). As noted in Section 1, "Determining Ways that Scarcity Affects the Choices Made by Governments and Individuals," efficient production is one of the main ways societies attack the problem of scarcity. Careful attention to demand is one of the ways producers boost their efficiency.
