Chapter 4: The Market Forces of Supply and Demand

 Chapter 4 is discussing the market processes of supply and demand in a perfectly competitive product market. By having a perfectly competitive market, there is no chance of monopolies and the sellers must become the price takers. For the sellers to understand or predict what price to sell their product, for example ice cream as used in the chapter, is affected by the quantity demanded and supplied. For demand, it is also important to understand the relationship prices of related goods have on the main product, ice cream. These related goods include substitutes and complements, or frozen yogurt and hot fudge. All of the topics above are similar for supply and how these variables all have a direct correlation with the price and the quantity supplied. In addition, two major tools to help understand these concepts are the supply/demand schedule and curve graphs. But what happens if the supply and demand of the product is exactly the same? If these conditions happen to exist, we have reached the term of equilibrium. Reaching equilibrium is sometimes considered the market-clearing price since everyone involved in the market is satisfied with the results. Yet, a change in equilibrium can result in a surplus (quantity supplied is too much) or a shortage (quantity demanded is greater than what is being supplied). In conclusion, all of these terms and concepts all relate to the principle of how markets are a good way to organize economic activity.