Question

In: Economics

Given the following two statements: “The price of corn rises and falls in response to changes...

  1. Given the following two statements:
  1. “The price of corn rises and falls in response to changes in supply and demand.”
  2. “In the corn market, demand often exceeds supply and supply sometimes exceeds demand.”
    In which of these two statements are the terms “supply” and “demand” used correctly? EXPLAIN

Solutions

Expert Solution

In sentence A, the terms supply and demand are correctly used.

A. “The price of corn rises and falls in response to changes in supply and demand.”

- This sentence explains the relationship between the price of a commodity (here, corn) to that of its supply and demand. The price of a commodity is inversely related to the demand for that commodity and directly related to the supply of the commodity. In this case, the price of corn will rise in response to a decrease in the quantity demanded of the corns. Whereas, the price will increase in response to an increase in the supply of the corns. Thus, this sentence correctly explains the law of supply and demand.

B. “In the corn market, demand often exceeds supply and supply sometimes exceeds demand.”

- In order to achieve an equilibrium in the market for corns, the supply of the corns must be equivalent to the demand for corns, only then the price of corns will be estimated. For that reason, this sentence holds incorrect as it fails to explain the law of supply and demand.


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