Chapter 1 What Is Economics? 33
What conditions might cause price to decrease? Prices fall when the sup-
ply for an item is greater than the demand, or when supply rises and demand
remains the same. For instance, at the end of winter, the demand for coats and
gloves drops. Stores drop prices and hold end-of-season clearance sales.
The Market’s Answer to Scarcity
To a large extent, demand in the marketplace determines what and
how much is produced. Demand is expressed by the spending choices of
consumers, businesses, and governments. These choices, to a large degree,
determine what and how much producers will bring to the marketplace.
In many cases, consumer demand leads to new and improved products.
Businesses generally own and control productive resources. They
determine the right mix of productive resources when they make products
and deliver services to meet consumer demands. They determine how to
produce goods and services.
The forces of supply and demand in the job market largely determine how
to divide the goods and services produced. Those who can offer the skills, knowl-
edge, materials, or capital needed for production receive income or profi ts. In
job markets, those who have the qualifi cations to perform the work most in
demand generally earn higher incomes and can buy more of the goods and
services they need. This helps determine how production is divided.
Equilibrium Price and Quantity
$80
0
1,000 2,000 3,000 4,000
$60
$40
$20
Number of Pairs
Price
per
Pair
Supply
Demand
1-6
The demand curve shows how
much people will buy (x-axis)
at different prices (y-axis).
The supply curve shows how
much product will be produced
(x-axis) at different prices
(y-axis). Equilibrium, $50, is
the point at which the demand
and supply curves intersect.