The Market Forces of Supply and Demand

When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country. When the weather turns warm in New England every summer, the price of hotel rooms in the Caribbean plummets. When a war breaks out in the Middle East, the price of gasoline in the United States rises and the price of a used Cadillac falls. What do these events have in common? They all show the working of supply and demand .

Supply and demand are the two words economists use most often and for good reason. Supply and demand are the forces that make market economists work. They determine the quantity of each good produced and the price at which it is sold. If you want to know how any event or policy will affect the economy you must think first about about how it will affect supply and demand.

This is chapter introduces the theory of supply and demand. It considers how buyers and sellers behave and how they interact with one another. It shows how supply and demand determine prices in a market economy and how prices, in turn allocate the economy,s scarce resources.

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