![]() ![]() ![]() Finally, we’ll see how supply and demand interact to create an equilibrium price-the price at which buyers are willing to purchase the amount that sellers are willing to sell. Then we’ll define demand and create a demand curve and define supply and create a supply curve. To illustrate this concept, let’s create a supply and demand schedule for one particular good sold at one point in time. Prices are influenced both by the supply of products from sellers and by the demand for products by buyers. In a market characterized by perfect competition, price is determined through the mechanisms of supply and demand. To appreciate how perfect competition works, we need to understand how buyers and sellers interact in a market to set prices. ![]() For example, when a commercial fisher brings his fish to the local market, he has little control over the price he gets and must accept the going market price. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price. Perfect competition exists when there are many consumers buying a standardized product from numerous small businesses. We’ll introduce the first of these-perfect competition-in this section and cover the remaining three in the following section. Economists have identified four types of competition-perfect competition, monopolistic competition, oligopoly, and monopoly. The competition for sales among businesses is a vital part of our economic system. Because there are many businesses making goods or providing services, customers can choose among a wide array of products. Under a mixed economy, such as we have in the United States, businesses make decisions about which goods to produce or services to offer and how they are priced. 2.2 Perfect Competition and Supply and Demand ![]()
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