Welcome to Economics 101! Today you will learn to understand how markets actually work! Every day you participate in markets - buying coffee, choosing streaming services, even deciding where to work.
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Have you ever wondered why prices change when you shop?
Economists use a powerful tool called the supply and demand model to predict what happens in markets. Think of it like a weather forecast - it helps us understand patterns and make predictions.
Just like meteorologists use simplified models to predict rain, economists use simplified models to predict market outcomes.
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Can you think of a recent price change you've noticed?
The supply and demand model has two main parts: buyers and sellers. Buyers create "demand" - they want things at different prices. Sellers create "supply" - they offer things at different prices.
When these two forces meet, they determine the market price you actually pay.
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Who sets the market price: buyers, sellers, or both?
We draw these forces as curves on a graph. The demand curve shows how much buyers want at each price. The supply curve shows how much sellers offer at each price:
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Does this make sense?
Here's the key insight: demand curves typically slope downward. Why? Because when prices drop, people buy more. When prices rise, people buy less.
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Think about your own behavior - wouldn't you buy more pizza if it cost $1 instead of $10?
Supply curves typically slope upward. Why? Because when prices rise, sellers want to sell more. When prices drop, sellers offer less.
