Economics: Today and Tomorrow © 2008

Chapter 7: Demand and Supply

Chapter Overviews

Section 1: Demand
The importance of understanding demand and supply in economics could be compared to the importance of understanding addition and subtraction in math. Learning how demand and supply affect prices is fundamental to understanding how markets work. Demand consists of how the marketplace decides what to buy and at what price. Supply is how the people who want to sell goods and services decide how much to sell and at what price. Therefore, the quantity demanded affects the price of the product.

Section 2: The Demand Curve and the Elasticity of Demand
The law of demand basically states two things: (1) if the price of a product goes down, more of it will be purchased; and (2) if the price of a product goes up, less of it will be purchased

Section 3: The Law of Supply and Supply Curve
The law of supply also basically states two things: (1) if the price of a product goes up, suppliers will want to offer more of it for sale; and (2) if the price of a product goes down, suppliers will offer less of it for sale.

Section 4: Putting Supply and Demand Together
We all follow these laws. When there is a shortage of something, buyers are willing to pay more for it. And we could reasonably expect that such a shortage and higher prices would cause producers to enter the market. In a similar fashion, when there is a surplus of something, suppliers must lower the price to get rid of their product.