Demand and Supply

According to an old joke, if you teach a parrot to say "Demand and supply," you have an economist. There is much truth in this quip. The tools of demand and supply can take us far in understanding both specific economic issues and how the entire economy works.

With our circular flow model in Chapter 2, we identified the participants in the product market and resource market. We asserted that prices were determined by the "interaction" between buyers and sellers in those markets. In this chapter we examine that interaction in detail and explain how prices and output quantities are determined.

Part One • An Intrgduction to Economics and the Economy


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