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Labor Markets and Minimum Wage_ Crash Course Economics #28.mp4Economic Systems & the Labor Market_ Crash Course Sociology #29.mp4Monopolies and Anti-Competitive Markets_ Crash Course Economics #25.mp4Market Economy_ Crash Course Government and Politics #46.mp4
A market is a way for buyers and sellers to come together to exchange goods and services. Markets have been part of civilization for thousands of years. Read the descriptions of different examples of markets.
Can you still shop at the Grand Bazaar?
Yes! There are over 4,000 stores in the Grand Bazaar that you can still shop at today. The stores sell almost everything you can imagine, from jewelry to rugs and spices to traditional copperware!
Markets can work in different ways. Sometimes people barter, or directly exchange goods and services. Other times, people use money to buy goods and services. Each statement below describes either bartering or using money.
What are you trading when you spend money?
People usually earn money by working or by selling something. For example, imagine your neighbor pays you $10 per day to feed her cat while she is out of town. You earn $30. Then, you spend the money you made to buy a new book and a milkshake. Think about what you had to do to get that money! In exchange for the book and milkshake, you are really trading your labor, or the work you put into feeding the cat.
That's why some people say money is a "means of exchange." It allows you to trade your work for other products you want or need without having to trade those things directly.
Markets can be different sizes. Some markets bring people together in their local communities, and other markets connect people all around the world.
In a local market, people buy and sell goods and services in the area where they are produced. An example of a local market is the market for babysitters. Babysitters usually do not travel far from their home to babysit.
In a global market, goods and services are bought and sold all around the world. An example of a global market is the market for oil. Countries that do not have a lot of oil buy it from countries where oil is a major natural resource.
Competition is a struggle or contest with others. In markets, competition produces benefits. Sellers compete with each other to provide what people want at the right price. If the price is too high, or the quality is too low, buyers may get the product from another seller. Since all sellers want to sell their products, this type of competition leads to more choices, higher quality, lower prices, and better service for buyers.
Choices, choices, choices!
When sellers compete, people have a lot of choice in what to buy. Companies offer new and better products to try to get you to buy them over their competitors' products! Imagine you are shopping for a watch. You can choose between different colors, sizes, features, and prices. You wouldn't have so many choices without competition! For example:
A watch that is waterproof and has a metal band.
A watch that can track your fitness activity.
A watch that is made from wood and is cheaper than the others.
Competition in markets gives people a chance to make money if they can provide a good or service people would like to have. Someone who starts a business or introduces a new product is called an entrepreneur (AHN-tre-pre-NYUR). Entrepreneurs can create new businesses or products to compete with ones that already exist.
Read the quotes from famous entrepreneurs.
"Don't sit down and wait for opportunities to come. Get up and make them!"
"You shouldn't focus on why you can't do something, which is what most people do. You should focus on why perhaps you can, and be one of the exceptions."
"Risk more than others think is safe. Dream more than others think is practical."
"Do not be embarrassed by your failures, learn from them and start again."
"Don't sit down and wait for opportunities to come. Get up and make them!"
That quote is from entrepreneur Madam C.J. Walker. She invented a line of hair products for African American people in 1905. She traveled around the United States selling and demonstrating her products. Her products were so successful that she became one of the country's first female self-made millionaires! You can still buy her products in stores today!
In competitive markets, buyers and sellers compete to get the best deal. The price of a product is determined by two factors: supply and demand.
Demand refers to the amount of a product that buyers are willing and able to buy at different prices. The table shows people's demand for muffins.
If prices are low, people want more muffins. But as the price goes up, the number of muffins people are willing to buy goes down.
Do you always want more when prices are lower?
According to the law of demand, people will usually demand more of something as its price goes down. But the change in demand will not always be the same! For example, the demand for products that people need will stay almost the same even when the price changes. If people really need something, they'll probably still buy close to the same amount no matter what the price is.
For other products, a small change in price can cause a big change in demand. For example, if people want a product but don't need it, they might wait until the price is right before they buy it.
Besides price, other factors can affect the demand for a product in a market. Sometimes, the amount of a product that buyers are willing and able to buy changes at every price.
Can the time of year affect the demand for a product?
Yes! People want to buy certain products more at different times of the year. Look at the items below. Why do you think the demand for these products goes up at different times of the year?
Pumpkin
Christmas lights
Wrapping supplies
Supply refers to the amount of a product producers are willing and able to sell at different prices. The table below shows the number of muffins a baker is willing to supply.
Look back at the table. The column on the left shows the price for each muffin and the column on the right shows how many muffins the baker is willing to sell at each of those prices. The table shows that if prices are low, the baker will supply fewer muffins. But as the price of muffins goes up, the number the baker is willing to supply goes up.
For example, the baker is willing to sell 10 muffins if the price is $2.00 but is not willing to sell any muffins if the price is $0.50.
Technology and supply
New technology can help sellers produce their products faster and increase the supply of their products in the market. For example, during the late 1700s and early 1800s, new technology helped improve farming. Farmers could plant and harvest crops faster, so they were able to grow crops on a much larger scale. The overall supply of food increased!
In economics, the equilibrium price is the price where the amount of a product that buyers want to buy is equal to the amount that sellers want to sell. So, the amount demanded is equal to the amount supplied.
In this market, the equilibrium price for muffins is $1.00. At that price, people want to buy the same amount of muffins as the baker is willing to sell.
Can the equilibrium price ever change?
Yes! Anytime the supply or demand of a product changes, the equilibrium price will change. Take fidget spinners as an example. In 2017, fidget spinners exploded in popularity. Lots of people wanted to buy fidget spinners, but the supply was low. So, at one point, some fidget spinners were selling for $100! But that didn't last. As the supply of fidget spinners increased, the price got lower.
Sometimes, sellers do not set the price of their product at the equilibrium price. When this happens, markets encourage sellers to adjust the amount they are charging.
Imagine you start a tutoring business to help other students with their social studies homework. You decide to charge $25 for your service, but no one signs up. Look at the table.
Have you ever bought an item on sale?
Did you know when products go on sale, it often means the price of the product started too high? Sales often occur when there is a surplus, which means the amount of an item supplied is higher than the amount demanded. Sellers have to lower the price to increase the number of people willing to buy the product, so they can sell all of it. Sometimes sellers have to lower the price several times to get rid of the surplus!
Different types of markets have different levels of competition. In some markets, there is a lot of competition. A market with perfect competition has many producers selling an identical product. Prices are set by supply and demand and no single producer can influence the price. If any seller improves the product or lowers the price, other sellers will quickly copy them.
What are some examples of perfect competition?
Most markets don't have perfect competition. But markets for agricultural products are pretty close. In these markets, there are many producers who are all making the same product. The products are so similar that it can be difficult to tell them apart!
In some markets, competition is limited. For example, a monopoly is a market that is controlled by only one seller. Monopolies often benefit the one seller and create costs for buyers. In a monopoly, the seller sets the price for everyone. This price is usually higher than it would be in a competitive market. Buyers have to accept this price, since it is difficult to find another seller.
Monopolies are rare today, but they are an important part of U.S. history. Which of the following are examples of a monopoly?
The political cartoon was drawn in 1881. At that time in U.S. history, monopolies had formed in several industries, such as railroads and oil.
The political cartoon shows Lady Liberty, a symbol of freedom, in front of a hissing snake labeled "monopoly." The snake's tail is wrapped around the Capitol building, where Congress meets to make laws. On the left side, someone is asking Uncle Sam, a symbol of the United States government, to do something about the snake. The artist uses these symbols to make an argument about monopolies and the United States government.
Are monopolies always bad for buyers?
No! Sometimes one company can provide a good or service better and at a lower cost than several competing companies can. This is true for most utility companies, such as electricity, gas, and water. Imagine if there were competing sets of power lines, gas lines, and water pipes running through your town!
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