1. What is a market?

A market is a place or service that allows buyers and sellers to exchange goods and services. A market may be a specific place or the exchange of a particular good or service at many different locations. In all markets, goods and services are exchanged and prices are determined.

2. What is demand?

Demand is the quantity of a good or service that consumers are willing and able to buy at every possible price during a specific period of time, all other things being equal. Demand refers to a list of prices and corresponding quantities. Quantity demanded is the amount of a good or service that people are willing and able to buy at one particular price.

3. What is supply?

Supply is the quantity of a good or service that producers are willing and able to offer at each possible price during a specific period of time, all other things being equal. Supply refers to a list of prices and corresponding quantities. Quantity supplied is the amount of a good or service offered for sale at one particular price.

4. How is price determined by demand and supply?

The price of a good or service changes until the equilibrium price is reached. Equilibrium is the point at which the quantity demanded equals the quantity supplied at a particular price.

5. What causes price to change?

Price may change when demand, supply, or both change. A change in demand causes price to change in the same direction: an increase in demand causes price to increase. A change in supply causes price to change in the opposite direction: an increase in supply causes price to decrease. If demand and supply both change, the direction of the change in price depends on the relative size of the changes in demand and supply.

6. What happens when price is not allowed to change?

When price is not allowed to change, the market can’t reach equilibrium. If a price ceiling is set that is below the market equilibrium price, a shortage will exist and will stay in existence as long as the ceiling price is maintained. Similarly, if a price floor is set that is above the equilibrium price, a surplus will exist.