1. How Much Will We Produce
Supply and Demand
How Much Will We Produce

2. Markets Markets determine prices Prices act to ration goods
Both are signals to producers as to what and how to produce

3. Demand
Relationship between various prices and the quantities consumers are willing and able to buy during some time period
Direct relationship between price and quantity demanded

4. Externalities Outside factors that change the demand for a product
Example: The Dixie Chicks CD

5. Supply
Relationship between various prices and the quantities producers are willing to produce and sell during some time period.
Direct relationship between price and quantity supplied

6. Market-Clearing Price
The price at which the quantity of a good or service consumers are willing to buy equals the quantity that producers will offer for sale
Below MCP- larger quantities are bought
Above MCP- surplus of goods will exist