Economics: The Market Forces of Supply and Demand

Difficulty: 1/3
Chapter Review: 4/5 stars

The phrase "supply and demand" is indeed a well known one, and quite a simple, reasonable concept as well. Mankiw really goes in depth to explain and analyze this pattern in economics. The only issue I have with this chapter is that the figures are often placed on a different page from the explanations, and some figures are hard to read, especially the ones defining surplus and shortage.

One of the first things that Mankiw brings up is that the forces of supply and demand only occur in a competitive market (multiple sellers opposed to only one seller). This is very essential since without competition, such a monopoly would have sole control over prices and thus supply and demand.

Mankiw does a wonderful job of dissecting the force into demand curves and supply curves. He describes the factors that affect shifts in them, such as number of buyers, prices of related goods (substitutes vs. complements), expectations, and more.

Finally, the chapter concludes with the actual definition of this invisible "supply and demand" force. It is that supply and demand curves meet at an equilibrium where the supply and demand are equal so that there is no surplus or shortage. The market tends to move towards the equilibrium over time, and it is this movement that defines the supply and demand force. This invisible hand is exceptionally important in economics because many factors such as weather and input prices and technology could shift the demand and/or supply curves and thus shift the equilibrium, ultimately affecting the productivity and economic activity of a market.