Authors libby rittenberg 120
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market with coffee, and the price of coffee beans plummeted. More
recently, weather conditions in various coffee-growing countries reduced
supply, and the price of coffee beans went back up.
Markets, the institutions that bring together buyers and sellers, are always
responding to events, such as bad harvests and changing consumer tastes
that affect the prices and quantities of particular goods. The demand for
some goods increases, while the demand for others decreases. The supply
of some goods rises, while the supply of others falls. As such events unfold,
prices adjust to keep markets in balance. This chapter explains how the
market forces of demand and supply interact to determine equilibrium
prices and equilibrium quantities of goods and services. We will see how
prices and quantities adjust to changes in demand and supply and how
changes in prices serve as signals to buyers and sellers.
The model of demand and supply that we shall develop in this chapter is
one of the most powerful tools in all of economic analysis. You will be
using it throughout your study of economics. We will first look at the
variables that influence demand. Then we will turn to supply, and finally
we will put demand and supply together to explore how the model of
demand and supply operates. As we examine the model, bear in mind that
demand is a representation of the behavior of buyers and that supply is a
representation of the behavior of sellers. Buyers may be consumers
purchasing groceries or producers purchasing iron ore to make steel.
Sellers may be firms selling cars or households selling their labor services.
We shall see that the ideas of demand and supply apply, whatever the
identity of the buyers or sellers and whatever the good or service being
exchanged in the market. In this chapter, we shall focus on buyers and
sellers of goods and services.
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
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