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Economists speak of the market price in a way that may make it seem that each good sells for only one price everywhere. Any consumer knows that it's never that simple, but thinking in terms of market price is quite reasonable. You may find that exactly the same DVD sells for different prices at different stores in the same city, and still other prices on the internet. Likewise, produce of identical quality may be sold for different prices at grocery stores on the same street. Nevertheless, when the price of tomatoes or DVDs changes at one retailer, they usually change in the same way at all retailers. Except for sales, promotional campaigns and loss-leaders,2 price variation from one store to another is usually modest for similar products of similar quality. When economists write market price, think of it as a sort of average price.

When we consider demand and supply relationships we usually think of market price as the independent or explanatory variable and quantity demanded or supplied as the dependant or explained variable. We take the view that consumers and firms can't alter the market price, they can simply react to it by deciding how much to demand or supply. We sometimes say that market price is "taken as given" to express this idea, or we might say they are price takers. Market price is independent of their decision but it explains their choices. Quantity demanded or supplied is dependant on or explained by market price.

It probably seems odd to imagine that firms have to take the market price as "given." When we draw a supply curve, we are imagining that there are thousands of small firms selling almost identical products, and that none of them is large enough alone to affect market price. These assumptions are somewhat unrealistic, but they enable us to analyze supply behavior in a very simple and basic way and to ignore some of complexities that can be safely ignored. Later in the course we will study more realistic industrial structures in which firms are not price takers. However, even in those industrial structures we will see that simple demand and supply analysis often gives the same qualitative result as those derived by more sophisticated methods.

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A loss-leader is a product sold at a price so low that the seller loses money to induce customers to come to the store in the hope that they will also purchase profitable items. Milk, soda, popular DVDs and CDs and other widely purchased products are frequently used as loss leaders.

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