the amount that a seller is willing to accept for a product and the amount that the buyer is willing to pay If a price is too high buyers will not make the purchase if the price is too low sellers will not offer the product for sale Prices are signals to both buyers and sellers They tell market participants how to divide up resources If buyers are choosing to purchase more apples than oranges at given prices it signals producers to use resources to produce and offer more apples Prices also ration limited resources For example a piece of land can be used either for apple or orange trees That piece of land is a limited resource Buying and selling involves decisions What goods should a consumer buy What services should a seller offer What is the price of a given product and how many should be made What are the incentives for a purchase or sale Microeconomics is a branch of economics that answers these questions by focusing on the behavior of individual consumers and firms 6 Buyers and Sellers
CHAPTER ONE Do You Demand It Buyers include individuals groups of people businesses organizations and governments Buyers demand goods and services In economics demand is about being willing and able to buy something like wanting a new shirt and having the 15 to pay for it When a buyer makes the 15 purchase he or she takes ownership of the shirt A buyer may want a new shirt but he or she must be able to pay the cost of the item If a shopper only has 10 to spend he or she cannot buy a shirt that costs 15 So price affects the transaction or the exchange of money for a good or service The prices of substitutes and complements also affect transactions A substitute is a good or service that can be used as a replacement A person may view several kinds of T-shirts as comparable options If one T-shirt costs 15 and another comparable T-shirt costs 25 the buyer will most 7
The price of a good such as a shirt is determined determined by the interaction of buyers and sellers in the marketplace 8
Do You Demand It likely buy the less expensive option the replacement Complements Complements are goods and services that go together such as peanut butter and jelly When making a purchase buyers may consider both the price of an item and its complement INDIVIDUAL BUYERS AND BUDGETS to Buyers often examine their budgets determine if they can afford a purchase purchase A budget is a plan that includes income and expenses Income is money a person receives such as wages and interest on bank accounts are costs They consist of the money the person spends such as to buy food or cars or to pay rent Expenses A buyer’s budget determines the quantity of the goods and services they Buyers must examine their budgets before making a purchase If a person’s income decreases he or she has less money to spend 9
