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The Nature of Markets - The Market

Let's now put the two things together - both demand and supply. We can now use this as a means of making some predictions about what we might expect to happen to prices and to the amount that would be both bought and sold in a market where changes are occurring all the time.

There are two very important things we need to know about here. When demand and/or supply in a market changes, we will get either shortages occurring (where demand is greater than supply) or surpluses (where supply is greater than demand).

We know that demand and supply curves both move when changes that affect either demand or supply change. In reality demand and supply are almost constantly changing. However, to make things easier to understand we tend to analyse markets by assuming that just one factor changes and then look at what we expect to happen as a result.

Look at the diagram below which has both demand and supply on it.

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Let's take an example of a topical issue. In recent weeks there have been widespread reports of the possibilities regarding bird flu. When these types of reports hit the headlines, there tend to be effects on different markets.

Imagine the diagram represents the demand for turkeys. What do you think might happen to the demand for turkeys after the news about bird flu? Will it rise or will it fall and what do you think will happen to the price and the amount bought and sold as a result?

Let's use the diagram to make a prediction. Move the slider to the right if you think demand will rise and to the left if you think it will fall. Then watch what happens.

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