Ch 4

Chapter four goes into markets and the correlations of supply and demand. A market, some more organized than others, run usually on competition, supply, and demand. Demand often false into the realm of price, so the higher the price of a good, the lower the demand, and vise versa (law of demand). Demand can then be split into two categories: individual and market. Individual demand being exactly what it sounds like, the demand and willingness of an individual to pay for a good, and the market demand simple adds up the individual demands. A shift in demand can take place due to income, prices, taste, expectations, and the number of buyers in question. Demand can also be altered due to government and policy interventions, which can increase of decrease demands of goods, even if it is not the good in question. Supply works in a similar fashion, as prices rise, the supply rises as well, but when it drops, you can expect a decline in supply. The individual supply makes up the market supply, though the market supply shows the total quantity supplied at any price. Similar to the demand, supply can change because of input prices, technological advances, expectations, and the number of sellers in the market. Supply and demand is then needed at an equilibrium where the demand meets the supply exactly, and the seller and buyer can both be satisfied. It is up to the market to reach the equilibrium through a “trial and error” method in which prices rise and fall for goods to try to find that equilibrium so that there is no surplus or shortage of goods.