Chapter 2 of 10All chapters
Chapter 2 of 10
Supply and demand
How prices get set.
Two curves
Higher prices usually mean buyers want less and sellers offer more. The price where those quantities match is where a free market tends to settle.
- A change in price moves along a curve; a change in anything else shifts it.
- Shortages and surpluses are signals that price is not at that point.
Elasticity
How much quantity responds to price. Petrol and medicine are inelastic in the short run, which is why taxes and price rises fall heavily on buyers there.