Chapter 4
Supply and Demand Made Easy
IN THIS CHAPTER
Understanding the relationship between price and the quantity supplied or demanded
Focusing on market equilibrium
Understanding how shifts in demand or supply affect market equilibrium
Identifying policies that prevent market equilibrium
In the modern economy, most economic activity occurs in markets, where buyers and sellers come together to trade money for a good or service. A market doesn’t have to be an actual place, and many markets nowadays exist only in cyberspace. But no matter what sort of institutional arrangement markets have, they all tend to behave in the same way.
A straightforward model called supply and demand does an excellent job of describing how markets work, regardless of which good or service is being bought and sold. This model separates buyers from sellers and then summarizes each group’s behavior with its own curve on a graph. The demand curve captures the buyers’ behavior, and the supply curve captures ...
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