The Concept of a Market
copper, wheat, oil, natural gas, lumber, newsprint, beef, pork,
etc. But it is not satisfied in the markets for many consumer
products such as smartphones and other electronic devices,
cars and motorcycles, clothing, and fast food and other
restaurant meals. In these cases, each producer sells a
different version of the product and often spends considerable
advertising resources trying to convince consumers to
purchase their version. In these markets, differentiated
products sell at different prices.
When all three conditions are satisfied, economists use the
demand-and-supply model to explain the determination of
market price and quantity. This model has proven to be very
successful in explaining outcomes in markets such as oil, steel,
copper, wheat, soybeans, beef, pork, newsprint, lumber,
foreign currencies, financial assets like stocks and bonds—and
apples!
So be careful when you try to apply the demand-and-supply
model. It works very well in describing the events in many
markets, but not so well for others. Later chapters in this book
will examine the more complex markets for which we need a
more advanced model.