Section Navigation pg-2

As in any introductory course, we must clarify a few terms so that there is no chance for misunderstanding. The demand relationship is a relationship between market price and how much consumers wish to purchase. When an economist speaks of demand what she really means is desired quantity demanded Likewise, supply is a shorthand for desired quantity supplied. The importance of the phrases desired quantity demanded and desired quantity supplied is that they convey an understanding that the quantity consumers would like to purchase at a given market price may not always be the quantity actually bought, and the quantity producers would like to sell at some market price might not be the actual quantity sold.

Much economic analysis is based on "what - if" thinking, and this is true of demand and supply analysis as well. When we express a demand or supply relationship, we are asking what quantities would be supplied and demanded if market prices were at various levels. We might consider a demand curve for Porsches that asks how many new Porsche 911s would be demanded if the price were US$10,000. The answer would certainly be a lot, but it would be desired, not actual quantity demanded, because the desired quantity supplied at that price would surely be zero. Likewise, we can ask how many Crown Victorias Ford would supply if it could sell them for US$250,000. The answer would be about desired quantity supplied because it is unlikely that they could actually sell any at that price. These are rather silly examples, but the point is an important one. We need to be able to think about how behavior would change as circumstances change, even if those changes have not yet occurred.

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