Chapter 4: Supply and Demand

     Chapter 4 focuses on the idea of supply and demand as well as how it affects the market economy. Without supply, there would not be a demand, and without demand, there would not be a supply. One cannot exist without the other, but they can and will change often. For example, generally, if the supply of a good increases, the price would usually decrease IF the consumption remains constant. To take it one step further, if the prices decrease, consumption may also increase, leading to a change in the supply and demand curves. But as they are changing, the supply and demand are also trying to reach a state of equilibrium in the market, which means that supply = demand. The equilibrium can be reached by either changing the price to either promote or lower consumption, or firms could either increase or decrease the supply in order to create the state of equilibrium.

     There are two major laws that influence market: the law of demand and the law of supply. The law of demand claims that when other factors are equal, the quantity demanded of a good falls as the price rises. For example, if a coffee company increases their prices during the summer as the weather remains constant, the demand for hot coffee would decrease. Meanwhile, the law of supply states that when all other factors are equal, the supply of a good rises when the prices rises. These two laws deal with the equilibrium in the market as well as the market economy, and are important in understanding the idea of supply and demand.