"In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn 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, demand and supply should be replaced by quantity demanded(Qd) and quantity supplied(Qs). At the equilibrium of the corn market, Qd = Qs. At the price levels higher than the equilibrium price, Qs> Qd and at lower prices Qd> Qs. By the term demand and supply, the entire demand and supply curves are represented and at a particular price, the total demand curve cannot be above or greater than the supply curve. Qd or Qs may be greater than one another. In the second statement, the words are termed correctly. Changes in demand and supply reflect changes in Qd and Qs at every price level. This results in shifts of the demand and supply curves. For an increase in demand or supply, the curves shift rightwards, whereas for decrease, the curves shift to the left. After these shifts, the price level either increases or falls to bring the market into equilibrium.
In the first statement, the terms "supply" and "demand" are not used correctly. Instead of "supply," it should be "quantity supplied" (Qs), and instead of "demand," it should be "quantity demanded" (Qd). This is because the statement is referring to the specific quantities of corn that are being demanded and supplied in the market, rather than the overall demand and supply curves.
At the equilibrium of the corn market, which is the point where the quantity demanded is equal to the quantity supplied (Qd = Qs), the market is in balance. However, above the equilibrium price, the quantity supplied (Qs) exceeds the quantity demanded (Qd), meaning that there is more corn available than there are buyers willing to purchase it. On the other hand, when the price is below the equilibrium level, the quantity demanded (Qd) exceeds the quantity supplied (Qs), indicating that there are more buyers wanting to purchase corn than there is corn available for sale.
Now, in the second statement, the terms "supply" and "demand" are used correctly. Changes in supply and demand reflect changes in the quantities demanded (Qd) and supplied (Qs) at every price level. These changes can result in shifts of the demand and supply curves. For example, an increase in demand or supply will shift the curves rightwards, indicating that more corn is demanded or supplied at each price level. Conversely, a decrease in demand or supply will shift the curves leftwards, indicating that less corn is demanded or supplied at each price level.
These shifts in the demand and supply curves will cause the price level to either increase or decrease in order to bring the market back into equilibrium, where quantity demanded equals quantity supplied. So, in the second statement, the terms "supply" and "demand" are used correctly to describe the relationship between changes in these factors and the resulting price movements in the corn market.