Chapter 4: The Market Forces of Supply and Demand

This chapter discusses supply and demand and how they affect the market. Both supply and demand should reach an equilibrium point. If not, there will be a surplus from excess supply or shortage due to high demand. Often when this happens for any good, the price of the good would fluctuate and rise or lower based on the quantity of supply or the demand of the good. In achieving equilibrium, there is a supply curve and a demand curve. The demand curve shifts right when there is an increase in demand, and shifts left when there is a decrease in demand. The supply curve shifts left when there is an decrease of supply, and shifts right when there is an increase of supply. When these two graphs of supply and demand go together, the point where they intersect is where the equilibrium price is. The equilibrium price is the price that balances quantity supplied and quantity demanded. As supply increases or decreases and demand increases or decreases, this shifts the lines which would produce a new equilibrium price. When these prices change, it has an affect on other goods as well. A substitute is where two goods for which an increase in the price of one would lead to an increase in demand for the other good. Meanwhile there are complements where two goods for which an increase in the price of one leads to a decrease in the demand for the other. Supply and Demand ultimately control market prices and play a large role in the way buyers and sellers think.