Chapter 4

Supply and Demand were the two main topics of the chapter. There is a direct correlation between them, they have an inverse relationship. Supply is controlled by the seller and demand is controlled by the buyer and there is rarely a single entity that has the power to drastically change either one if there is healthy competition. When there is one entity, it's known as a market failure and the government usually steps in. Whenever there is a change in demand or supply at EVERY price, not just a single price or a few, then it's known as a curve shift. This is an important distinction since in order to change the demand or supply at every point it must be a drastic change, whether that comes as a result of a public shift in opinion or government influence. The main example used was ice cream in a small town. In any given town there will be a number of ice cream shops and people that buy ice cream from those shops. Price is the main motivator when people decide whether or not they want to buy something and the quantity that they want to buy and the equilibrium, or where the supply and demand curve meet, is where the price is located. It is at the equilibrium that the buyer's value of a product and a seller's cost meet. That is why price is so important and such a valuable indicator of natural economics and trade and why government interference tends to hinder trade rather than help it.