Introducción al Mercado: Oferta, Demanda y Equilibrio

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TOPIC 7 · LOMLOE 2025-2026 The Market Supply, demand, equilibrium, market types, income distribution, and equity. A comprehensive overview of how markets function and their social implications. Material prepared by Econosublime · Edited by Economarina and Economyriam CHAPTER 1 What is a market? Why does the price of prawns go up at Christmas? Why are hotels more expensive in summer than in winter? Why did masks significantly increase in price at the beginning of COVID-19? Most people respond "it's supply and demand", although they don't quite know what they mean.

In this topic, we are going to learn precisely that: how supply and demand work, which will allow you to understand forever why prices go up or down. Sometimes markets are very organised, like fish markets, where buyers and sellers gather in a space and auction the fish to the highest bidder. Other markets, like the coffee you have in a cafe, are not so organised: each seller sets the price they deem appropriate, and each buyer decides how much they will consume at that price. A MARKET is a physical or virtual place where buyers and sellers exchange a good or service for payment. We can talk about the housing market, coffee, vegetables, petrol, etc. The 3 key elements of every market 1.

Buyers They form the demand of the market and decide how much of a good they wish to buy according to its price. How do markets work? 2. Sellers They form the supply of the market and decide the quantity of a good or service they wish to offer. 3. Prices They arise as a negotiation process between sellers and buyers. When supply and demand balance, a market price is established. We live in a market economy where no one tells us what to buy or businesses what to produce. The key to how it works lies in prices, for three reasons: 1 Sellers and consumers want to reach an agreement Sellers want to sell at the highest possible price; buyers want to pay as little as possible.

An appropriate price will be set for both. If it is too high, there will be no sales; if it is too low, the seller will not produce. 2 Prices are signals for the market If more people want to buy bread, it sells out quickly and consumers will be willing to pay more. The price increase sends a signal. The opposite happens if fewer people want to buy: the bread remains unsold and prices fall. 3 Prices are incentives for businesses Increasing prices is profitable: businesses flock to profits like flies to honey. New bakeries will open because selling bread yields high profits. Businesses know they should produce more where prices are rising. Why is the free market important?

It promotes competition and innovation, as sellers are motivated to offer quality products at the most competitive price. Prices act as signals informing producers of what goods people want. But be careful, as we will see later, the free market is not perfect. CHAPTER 2 Demand and Supply Demand Imagine you walk into a shop to buy a pair of trainers for €40. You see some Converse reduced by 25% (€45) and change your mind. At the counter, they tell you the actual reduction is 50% (€30), so you grab two pairs. Finally, you discover the discount is 70% (€20 each pair) and you end up buying three. What happened? The law of demand came into play.

The DEMAND FOR A GOOD is the quantity of that good that buyers are willing to acquire at a specific price. It is the intention to buy at a given price. To study demand, we need a table that tells us how many coffees people wish to consume at each different price. LAW OF DEMAND: At a lower price, the quantity demanded is higher, and vice versa; at a higher price, the quantity demanded is lower. The Coffee Demand Table and Curve The demand table shows how much coffee consumers will consume for each price. The demand curve is its graphic representation. If the price is €1, the quantity demanded is 4 million cups. If it rises to €1.50, it drops to 2.1 million.

If it falls to €0.50, it rises to 8.2 million. Coffee Price (€) 2 1.5 1 0.5 0 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11 11.5 12 12.5 13 Quantity Demanded (millions) Supply For a café to be able to serve coffee, farmers must plant coffee beans. Land is limited, and they must choose between growing potatoes, tomatoes, or coffee. The quantity supplied depends on the price offered to them. The SUPPLY FOR A GOOD is the quantity of that good that businesses wish to sell in the market at a specific price. It is the intention to sell at a given price. If prices are low… Producers will not be able to cover their costs.

Very few will be willing to sell coffee because they will barely make any money. If prices are high… Farmers will want to grow more coffee to earn more money. If coffee rises to €1.50/kg and potatoes remain at €1/kg, many will abandon potatoes and produce coffee. As the price rises, the quantity supplied will be greater. LAW OF SUPPLY: At a higher price, the quantity supplied is higher. A common student error: "because prices are high, few people will buy it and few people will supply it." The error is not to realise that if prices are rising, it is precisely because people are buying it.

The Coffee Supply Table and Curve Coffee Price (€) 2 1.5 1 0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 Quantity Supplied (millions) CHAPTER 3 Market Equilibrium Consumers want to buy at the lowest possible price, and farmers want to sell as expensively as they can. There is an equilibrium point where both parties agree. In our coffee example, equilibrium occurs at a price of ¬1, where the quantity demanded matches the quantity supplied: 4 million cups. At the equilibrium point (E), the desires of suppliers match those of demanders. The quantity one party is willing to produce at a given price coincides with the quantity the other party is willing to consume.

What happens out of equilibrium? Price below equilibrium (¬0.75) The quantity demanded rises to 5.5 million (law of demand). But many farmers stop producing coffee, lowering the supply to 3.2 million (law of supply). Result: SHORTAGE of 2.3 million cups (excess demand). Some consumers will pay more ³ the price rises back to ¬1. Price above equilibrium (¬1.50) Many buyers stop buying: demand falls to 2.1 million. Many farmers start selling coffee: supply rises to 5.5 million. Result: SURPLUS of 3.4 million cups (excess supply). Businesses lower prices to attract customers ³ the price falls back to ¬1.

Solved activity: Approaching equilibrium 1 2 Abundant tomato harvest Step 1: Large increase in quantity supplied with the same demand ³ excess supply (ABUNDANCE). Step 2: The price should fall for consumers to buy more and eliminate the surplus. Pilot strike Step 1: Decrease in the supply of flights with the same demand ³ excess demand (SHORTAGE). Step 2: The price should rise for fewer consumers to buy and eliminate the excess demand. Solved activity: The pizza enigma (El Molino) Price Qd (pizzas) Price Qs (pizzas) 4 100 4 400 3 150 3 320 2 225 2 225 1 300 1 80 Equilibrium: Price = ¬2, Quantity = 225 pizzas. At ¬3: excess supply of 170 pizzas (the company should lower the price).

At ¬1: excess demand of 220 pizzas (the company should raise the price). CHAPTER 4 Do all markets work the same way? We have just seen how prices are set in the market and how equilibrium is reached. But not all markets work the same way. The key is that sometimes companies can influence the price and raise it above equilibrium to obtain more profit. The 4 Conditioning Factors of the Market 1. Number of companies Markets with many sellers (bakeries) make it difficult to raise prices because consumers have alternatives. Markets with few companies (mobile telephony, petrol stations) allow prices to be raised: as we barely have alternatives, companies take advantage. 3.

Barriers to entry Some markets allow free entry (bakeries, clothing shops). In others it is very difficult: lack of necessary technology (HP, Lenovo), legal licences (taxis in Spain). Fewer competitors = higher prices (like petrol stations). 2. Differentiation of goods Homogeneous goods (tomatoes from one greengrocer or another) do not allow prices to be raised. Differentiated goods (iPhone, Coca Cola) do: when we perceive a product as very different, we are willing to pay more. 4. Perfect information In some markets we know all the products and prices.

In others (electricity market) it is very complicated to understand the electricity bill, something that companies take advantage of to raise prices. Conclusion: Companies have more capacity to increase prices if: 1) there are fewer sellers, 2) products are more differentiated, 3) there are barriers preventing the entry of competitors, and 4) there is little information in the market. CHAPTER 5 Types of Market Depending on the characteristics and conditions of the market, companies may have the ability to influence prices. This leads us to two main types of markets. Competitive Market Companies cannot influence prices. They must set a price similar to competitors. Example: bakeries.

If one charges double, it loses almost all its customers. Non-Competitive Market Companies can influence prices. If Coca-Cola or Apple raise prices, they lose some customers, but many still buy. Characteristics of Competitive Markets 1 2 Many Sellers If a company raises its price, consumers have many other options. 3 Freedom of Entry If scarcity arises, new competitors enter the market, ensuring more alternatives. Homogeneous Products If a company raises its price, consumers buy the same thing from another seller. 4 Perfect Information If someone raises the price, consumers know there are cheaper options.

The 3 Types of Non-Competitive Markets A) Monopoly A single seller for the entire market. Entry barriers (patents, control of a productive factor, technological superiority) prevent competitors. Example: RENFE on most routes. With no competitors, the company raises the price. Specific cases: popcorn at the cinema, water at airports. Market Types Comparison Table B) Oligopoly Few companies dominate most of the market (video consoles, cola drinks). Barriers: significant investment required, legal restrictions (pharmacies, petrol stations), cost advantages (supermarkets). Companies take advantage of the lack of alternatives and raise the price.

C) Monopolistic Competition Many sellers with differentiated products (perfumes, fast food). Companies strive for consumers to perceive their products as different and better. Those who succeed can set higher prices; those who don't must settle for prices similar to competitors. Characteristic Perfect Competition Monopoly Oligopoly Monopolistic Comp. Influence on Prices None (price-takers) High Greater the fewer the companies Low (depending on differentiation) No.

of Companies Many One Few Many Product Homogeneous Only one good Homogeneous or differentiated Differentiated Entry Barriers None Patents, control of factors, technology Investment, legal restrictions, cost advantages None (except differentiation) Information Perfect Imperfect Imperfect Imperfect CHAPTER 6 Income Distribution in Markets Today, wealth is very unevenly distributed. Many young people earn around ¬800 a month while executives earn thousands upon thousands of euros. In Spain, only 20 people have the same wealth as another 13 million Spaniards combined (30% of the population). And the 4 million highest earners have as much as the other 40 million combined.

Even if the market were efficient and produced everything society wanted, this does not guarantee that production would be distributed equitably. How does the market distribute income? A. Quantity of Productive Factors Income does not only come from labour, but also from renting land, capital investments, or profits from entrepreneurial initiative. B. Scarcity of those Factors A supermarket shelf stacker earns little because almost anyone can do that job. A Google programmer earns much more because few people can do that. C. Contribution to Production Those who produce more goods or services of higher value will receive greater income. This explains why Messi came to earn ¬100 million a year.

The most highly skilled jobs are better paid. The market excludes certain people Those who cannot work Children, the elderly, women who have just given birth, disabled people. Without state aid, they would find themselves without income. Those who cannot find work In a world where robotics are gaining ground, many people struggle to find work that matches their qualifications, or any work at all. Unpaid work Homemakers produce valuable services (cleaning, cooking, caring) but do not receive income from the market.

Not everyone is born with the same opportunities Inheritance Those born into wealthier families inherit productive factors (land, capital) and have more opportunities to gain good qualifications. Studying for a university degree would cost around ¬64,000 in Spain. 8 out of 10 people whose parents did not finish primary school did not complete secondary education. The market often reproduces inequality from parents to children. Ability Some people are born with skills highly valued by the market. Millionaire footballers who train 2 hours a day, people with a gift for science. Sometimes gaining good qualifications is not just a matter of effort.

Luck Health problems, becoming an orphan, having to start work too early, your company going bankrupt& Unfortunately, not everything is a matter of effort. CHAPTER 6 (CONT.) Consequences: Inequality and Poverty Inequality In both the United States and Europe, inequality is growing. In the U.S., the richest 1% control 40% of the wealth, while the poorest 90% only hold 23%. In Spain, the richest 1% control 25.1% of the wealth and the richest 10% own 53.8%. The poorest 10% have only 0.1%, and the poorest 50% barely accumulate 10.3%.

40% U.S.: Richest 1% Controls 40% of the country's wealth Relative Poverty 25% Spain: Richest 1% Controls 25.1% of national wealth 21% Relative poverty in Spain Almost 10 million people (21% of the population) A person is in RELATIVE POVERTY when, even if their basic needs are covered, due to their low income level, they experience a certain social exclusion that prevents them from participating in economic, social, or cultural activities. In Spain: relative poverty if earning less than ¬9,535 annually (less than ¬800/month). For a family with a father, mother, and two children: less than ¬20,024 per year (¬9,535 + ¬4,767 + ¬2,860.5 + ¬2,860.5).

Consequences for these individuals: Educational difficulties due to inability to afford better training Health problems due to inability to buy healthy food, visit the dentist, or purchase medication Exclusion from social activities due to inability to afford pubs, concerts, etc. CHAPTER 7 What is Equity? Equity Equality Equality The same for everyone. Everyone earns the same money. Why does a society seek equity? Equity Related to **fair distribution**. It's not about giving everyone the same, but what they need and/or deserve. It's about **equality of opportunity**. People are interested in justice.

Imagine that you and a colleague do an excellent piece of work and the teacher awards you 3 points to share. Your colleague decides the division, and you decide whether to accept or not (if you reject, both get nothing). A division of 1.5 and 1.5 seems fair. Even 2 and 1 might be acceptable if one person worked harder. But if your colleague proposes 2.75 for themself and 0.25 for you, you would probably **reject the deal**, even though technically both of you would be better off. **For individuals and society, efficiency is not the only important factor: justice matters to them.** Most economists do not believe there should be total equality.

For them, in a fair distribution, those who strive harder or perform better should receive greater reward. **Equality is not just; equity is.** However, there is no agreement on what exactly constitutes a fair distribution. How do we achieve equity? There is no justice if the rules are not fair. If someone is born into a low-income family who cannot afford their education, it will be harder for them to get good training. They may do less skilled jobs with a lot of effort, but which do not pay as much. To achieve equity, it is essential to **equalise opportunities**. Free Education Free basic education for all and scholarships for higher education.

Social Aid Aid for people who lose their income (illness, dismissal, old age) to ensure a minimum amount of money. Free Healthcare If someone has no money and has health problems, they would not have the opportunity to work. Progressive Taxes Those who earn more pay more taxes to help the most disadvantaged have more opportunities. Although many people may agree that those who earn more should pay more, there is much debate about how much more. The same applies to aid: there is debate about whom to help and how much aid to give.

**There is no agreement on what constitutes a fair distribution.** LEARNING SITUATION Activities and Final Product This topic includes a comprehensive set of practical activities, market experiments, and a final product that connects theoretical concepts with social reality. Main Activities 01 Act. 1: Demand and Supply Graphical representation of demand curves (serrano ham) and supply (watermelons). Demand functions (Xd = 62,700 2 300P) and supply (Xo = 150P 2 300). Verification of the laws of demand and supply. 04 02 Act. 2: Demand, Supply, and Equilibrium Analysis of 4 real-world cases (football boots, tomato machinery, mad cow disease, grape drought).

Calculation of equilibrium in backpack and umbrella markets with linear functions. 05 03 Act. 3: How Do Markets Work? Identification of the 4 conditioning factors in real markets. Analysis of competitive assumptions in wheat, petrol, restaurants, and soft drinks. Classification of products by market type. Act. 4: Market Experiments Experiment 1 (Chamberlin): Buyers and sellers with reserve price and production cost cards. Demonstration that the price converges to equilibrium (¬35, 10 transactions). Importance of information. Experiment 2: Modifications to create imperfect markets (reduce sellers, create monopoly, barriers to entry, product differentiation).

Comparison of average prices and number of transactions. Final Product: We help each other! Act. 5: Income Distribution Debate on Messi's salary (¬100 million/year). Debate on taxes: is it worth paying taxes in exchange for social security, healthcare, and education? Analysis of relative poverty in Spain. Task 1-2 Research poverty in Spain: people in relative poverty, gender differences, problems making ends meet, heating, food. Task 3 Research poverty in your Autonomous Community and propose measures to combat it. Task 4-5 Entrepreneurial vision: a profitable business idea that sells products at a low price for the most disadvantaged. Indicate 3 personal actions to help your community.

Final task: Create a Visual Thinking or an infographic with all the work from the previous 5 tasks. Download the Visual Thinking template to complete this task.