The supply-and-demand framework is the most powerful framework in the economist’s toolkit. Armed with an understanding of this framework, you can make sense of much economic news, and you can make intelligent predictions about future changes in prices.
A true understanding of this framework is more than just an ability to shift curves around, however. It is an understanding of how markets and prices are one of the main ways in which the world is interlinked. Markets are, quite simply, at the heart of economic life. Markets are the means by which suppliers and demanders of goods and services can meet and exchange their wares. Because exchange creates value—it makes both buyers and sellers better off—markets are the means by which our economy can prosper. Markets are the means by which economic activity is coordinated in our economy, allowing us to specialize in what we do best and buy other goods and services.
Economists wax lyrical about these features of markets, but this should not blind us to the fact that markets can go wrong. There are many ways in which market outcomes may not be the most desirable or efficient. In other chapters, we look in considerable detail at all the ways that markets can fail us as well as help us.
Fill in the missing values in Table 7.5 "Individual and Market Demand". What can you say about the missing price in the table?
Table 7.5 Individual and Market Demand
|Price of Chocolate Bars ($)
|Household 1 Demand
|Household 2 Demand