Reading. Read the text and single out the following notions:

Read the text and single out the following notions:

· a competitive market

· the law of demand

· the law of supply

A market is defined as a group of buyers and sellers of a particular product or service. Competitive markets are markets with many buyers and sellers, so that each has a very small influence on the price. Supply and demand is the most useful model for a competitive market, and shows how buyers (citizens) and sellers (businesses) interact in that market.

The first thing to understand is that demand is not the same as desire, or need, or want. When desire is supported by the ability and willingness to pay the price, it becomes an effective demand and has an influence in the market.

Demand, in economics, may be defined as “the quantity of the commodity which will be demanded at any given price over some given period of time”. According to the law of demand, price has a significant effect on demand. Consumers will buy less at higher prices and more at lower prices.

Among the factors which influence consumers to buy more or less of a product, even when the price of the product does not change are:

· Income

· Tastes and preferences

· Substitutes

· Complementary goods

Supply is not the same thing as “amount available”. We are only concerned here with the amounts actually brought to market and these amounts depend on the ruling market price. The basic law of supply says “More will be supplied at a higher price than at a lower price”. An increase in price usually means that production will become more profitable. In addition, an increase in price would tend to encourage new firms to enter the industry.

In addition to price, there are other factors that will strongly influence the amount of a good or service supplied to the market:

· Number of producers

· Resource prices

It is possible for supply and demand to be equal. In this case, the amount of supplied products or services must equal the demand for those products and services. If this relationship between supply and demand is attained, the economy is balanced in a state of equilibrium.

Remember!

If supply continues to increase and demand softens (or even remains constant), prices will continue to fall.