“In the latte market, demand often exceeds supply and supply sometimes exceeds
ID: 1187915 • Letter: #
Question
“In the latte market, demand often exceeds supply and supply sometimes exceeds demand.†“The price of a latte rises and falls in response to changes in supply and demand.†In which of these two statements are the terms “supply†and “demand†used correctly? Explain.
In the first statement “supply†and “demand†are used incorrectly. Supply and demand are both schedules or curves that intersect where quantity supplied and quantity demanded are equal. One cannot talk of curves that intersect as exceeding or not exceeding each other.
Supply and/or demand can change (the entire curves can shift). Each time this happens, it will create a new intersection of the two curves that will lead to changes in the equilibrium quantity and price of corn. Thus, the terms “supply†and “demand†are used correctly in the second statement.
This was taken from the homework help section. Can someone please extend the explanations more though? They don't make sense to me.
Explanation / Answer
No, actually, they should be quantity demanded often exceeds quantity supplied and quantity supplied sometimes exceeds quantity demanded. Remember, the termssupply and demand refer to the (positive relationship in regards to supply and negative relationship in regards to demand) Supply/Demand=relationship.
Supply curves and demand curves are relatively static, but can move somewhat.
But the market price will change as they move even a little - changes in market price do not move the curves.
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