Chapter 3: Demand, supply, and markets
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This chapter covers the fundamentals of economics: demand, supply, and markets. In law, you can apply the concepts that are covered in this chapter to many different contexts. Think of a dispute in which neighbors want to prevent an airport from working at night. Imagine you were a policy-maker, judge, or government official having to decide the issue. In any case, you would want to use law as a means to resolve the dispute. The dispute is about scarce resources. You cannot have both quiet nights and planes flying at night. Any legal resolution of the dispute will allocate rights and thereby resources (nightly peace for neighbors or the opportunity to make money to the airport). You have seen in the economic paradigm (see Chapter 2, sections I.B and II) that economics deals with the allocation of scarce resources. Applying a standard of efficiency would recommend allocation of the right to determine whether the airport can work at night with the party that values it most. The section on demand will tell you how economists think about the value of goods – for instance, the value of quiet nights. You have been briefly introduced to the notion of utility and to the fact that it is decreasing at the margin (see Chapter 2, section I.C.1). Now you will learn how utility is constructed from tradeoffs and how demand is constructed from utility and how value in economic terms is inherently relative.