Economics

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Why did home prices boom and bust?

In July 2006, home prices in the United States peaked at double their 1999 level. By early 2009, prices had crashed by 46 percent and were back at their 2002 levels. Why? What made home prices rise and then fall?

Demand and Supply

When you have completed your study of this chapter, you will be able to 1 Distinguish between quantity demanded and demand, and explain what determines demand. 2 Distinguish between quantity supplied and supply, and explain what determines supply. 3 Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.

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CHAPTER CHECKLIST

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Part 1 • INTRODUCTION

COMPETITIVE MARKETS

When you need a new pair of running shoes, want a bagel and a latte, or need to fly home for Thanksgiving, you must find a place where people sell those items or offer those services. The place where you find them is a market. You learned in Chapter 2 that a market is any arrangement that brings buyers and sellers together. A market has two sides: buyers (demanders) and sellers (suppliers). There are markets for goods such as apples and hiking boots, for services such as haircuts and tennis lessons, for resources such as computer programmers and tractors, and for other manufactured inputs such as memory chips and auto parts. There are also markets for money such as Japanese yen and for financial securities such as Yahoo! stock. Only imagination limits what can be traded in markets. Some markets are physical places where buyers and sellers meet and where an auctioneer or a broker helps to determine the prices. Examples of this type of market are the New York Stock Exchange; wholesale fish, meat, and produce markets; and used car auctions. Some markets are virtual spaces where buyers and sellers never meet face-toface...