The marketplace • A market is defined as an institution or mechanism, which promotes trade by bringing together buyers (demanders) and sellers (suppliers). • Replaced barter, which is the direct exchange of goods. • A modern market brings money and prices into the circular flow of goods.
Definition
The amount that an individual or individuals are willing to buy at any given price.
Effective Demand
This means that people actually have the money to make the purchases e.g. we could all claim to demand a porsche at £40,000. But, how many of us actually have that amount of money? • Law of demand: price and quantity are inversely related. 1. As price goes up, quantity demanded goes down. 2. As price goes down, quantity demanded goes up. 3. Why more is bought as price drops. a. Income Effect: as the price of a good drops, consumers feel richer and buy more. b. Substitution Effect: as the price of a good drops, it becomes cheaper relative to other goods and consumers buy more.
DEMAND AND PRICE
For virtually all products demand increases as price falls and vice versa
Demand for Mars Bars in a school:
|Price |Quantity Demanded |
|£0.20 |400 |
|£0.25 |350 |
|£0.30 |300 |
|£0.35 |250 |
|£0.40 |200 |
|£0.45 |150 |
|£0.50 |100 |

DEMAND CURVE
This shows the relationship between demand and price.
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• What determines demand 1. The tastes or preferences of consumers 2. The number of consumers