Making markets work well with customers
An Office of Fair Trading case study

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Page 5: How markets work

Consumers (buyers) demand goods and services; suppliers (businesses) supply these goods and services. Consumers' desire for a particular product creates higher prices that, in turn, stimulates supply. On the other hand, consumers' lack of interest, will push prices down and may cause suppliers to stop manufacturing that product altogether.

The point where the amount supplied equals demand (i.e. where there are no shortages or surpluses) is referred to as the equilibrium. The price at this point is called the 'equilibrium price'.

If several producers compete for trade then the price will generally reflect what consumers are willing to pay, whilst providing suppliers with a reasonable profit.

Office of Fair Trading | Making markets work well with customers