Conrad’s paper mill faces intense competition from many other producers. Conrad may think his paper is the best, but in practice, customers can’t tell the difference between papers from different suppliers—it’s a homogeneous product. We begin this chapter by deriving the market supply and demand curves. We then combine them to find the market equilibrium—the point where supply meets demand—and explore how this equilibrium changes in response to shocks on either the supply or the demand side. This analysis will help Conrad understand why the price of paper can fluctuate from year to year. Sometimes a higher price is accompanied by lower production; at other times, both price and output increase; and in some cases, the price rises without much change in output at all. It all depends on the type of shock, and the market model offers a useful framework for thinking through these relationships. Finally, we turn to international trade. Is trade necessarily bad news for Conrad, or could it—as Anna suggests—open new opportunities for the paper mill?