The demand and supply schedules for gum are a. Suppose that...

The demand and supply schedules for gum are a. Suppose that the price of gum is $70 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts. b. Suppose that the price of gum is $30 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts.

The demand and supply schedules for gum are
a. Suppose that the price of gum is $70 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts.
b. Suppose that the price of gum is $30 \mathrm{c}$ a pack. Describe the situation in the gum market and explain how the price adjusts.

Key Concepts

Excess Demand

Excess demand, or a shortage, happens when the quantity demanded exceeds the quantity supplied at a given price. In such cases, buyers compete for the limited available goods, which drives prices upward as the market moves towards equilibrium.

Excess Supply

Excess supply, or a surplus, occurs when the quantity supplied exceeds the quantity demanded at a particular price. This imbalance exerts downward pressure on prices as sellers reduce prices to stimulate demand and clear the surplus, moving the market towards equilibrium.

Price Adjustment Mechanism

The price adjustment mechanism is a process by which market forces respond to imbalances between supply and demand. When there is excess supply, prices tend to fall, thereby increasing demand and reducing supply until equilibrium is reached. Conversely, when there is excess demand, prices rise, leading to a reduction in demand and an increase in supply, again moving the market towards equilibrium.

Supply

Supply represents the quantity of a good or service that producers are willing and able to offer for sale at different prices. The supply schedule or curve typically shows a direct relationship between price and quantity supplied; as prices increase, producers are generally incentivized to supply more of the product, and as prices decrease, the quantity supplied tends to drop.

Demand

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices. It is typically represented by a demand schedule or curve, which shows an inverse relationship between price and quantity demanded, meaning that as prices fall, consumers tend to buy more, and as prices rise, they buy less.

Market Equilibrium

Market equilibrium is the point where the quantity demanded equals the quantity supplied. At this equilibrium price, there is neither excess supply nor excess demand, and the market clears. It is the price at which buyers and sellers are in balance, and no inherent market pressure exists to change the price.

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