Consumers decisions affect producers, and producer decisions affect consumers.
Consumers and producers influence each other in a circular fashion.
A circular flow of influences
A circular flow model
There are several consequences. The most basic one is that because of this, the market produces all and only the products which are demanded by the consumers. However, it also leads to certain types of "market failures" notably existence of merit goods and demerit good. It also excludes public goods (roads/light houses) our of productions. In general terms, this arrangement makes the market as efficient as possible (has been proven historically until this point to be more efficient than centrally plannned economy.)
the properties of a free-market system that determine what the outcomes will be
Consumer decisions affect producers, and producer decisions affect consumers
The free-market system has a circular flow of influences.
Consumers and producers influence each other in a circular fashion.
A circular flow of influences
"Supply is relative to demand" explains the factors responsible for setting prices in a free market system.
A circular flow model
The properties of a free-market system that determine what the outcomes will be. (apex)
the properties of a free-market system that determine what the outcomes will be
There are several consequences. The most basic one is that because of this, the market produces all and only the products which are demanded by the consumers. However, it also leads to certain types of "market failures" notably existence of merit goods and demerit good. It also excludes public goods (roads/light houses) our of productions. In general terms, this arrangement makes the market as efficient as possible (has been proven historically until this point to be more efficient than centrally plannned economy.)
Consumers and producers influence each other in a circular fashion.
Individual goods
R