One of the simplest models that you will meet in your study of economics is the demand and supply model. It is also one of the most powerful models, as it can be applied in a wide variety of circumstances to help us understand how the economy operates, and whether it operates effectively. Two key concepts that are part of the analysis of demand and supply are markets and equilibrium.
A market can be defined as a set of arrangements that allows exchanges to take place. This could be a physical location; I am sure you can think of examples, such as your local farmers’ market or the London Stock Exchange. However, in general, this is not the case. Economists may analyse the market for a particular good, in which a physical location is only part of the story, as transactions can take place in many different ways — perhaps in several locations, on the internet or by telephone. Indeed, the whole notion of demand and supply for a good relies on the existence of a market for that good that brings together all the various ways in which transactions in that good can be undertaken.
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