Supply and Demand: A Model of a Competitive Market

This chapter will focus on competitive markets, a market in which there are many buyers and sellers of the same good or service. The key feature of a competitive market is that no one individual's actions have a noticeable effect on the price at which the good or service is sold. When a market is competitive, its behavior is well described by the supply and demand model. Because many markets are comparative, the supply and demand model is very useful one indeed. There are five key elements in this model:

• The demand curve
• The supply curve
• The set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift.
• The market equilibrium, which includes the equilibrium price and equilibrium quantity
• The way the market equilibrium changes when the supply curve or demand curve shifts

The Demand Curve