This circle represents a whole market for a good or service. There are
varying degrees of Demand and Supply ELASTICITIES.
AND CONSUMERS OF
The “inner core” of this market represents Consumers and Producers
whose Demand and/or Supply are relatively “Inelastic”. They are going
to buy and sell regardless of movements in price (Ceterus Paribus).
As we move from the “core” of market participants who are going to buy and sell regardless,
Demand/Supply becomes relatively MORE ELASTIC. Participants become more sensitive to changes in
PRICE (Inputs as well as Outputs).
Relatively MORE ELASTIC
as we move to the
As we get closer (YELLOW area) to participants at the Margin, price becomes more of an issue. This is
the “danger zone” space in the market is where economists focus attention on---it is where real harm
can occur when price INCREASE.!
These are the “Marginal”
participants in the Market--
very sensitive to price
Area of Increasing
The YELLOW area is representative of what Economist call “Thinking at the Margin(s)”. This is
where “the action” takes place when market participants and/or government change prices or policy.