What is the economic term for the amount of something available and the demand for goods?

government policy for dealing with monopoly. Antitrust laws aim to stop abuses of market power by big companies and, sometimes, to prevent corporate mergers and acquisitions that would create or strengthen a monopolist. There have been big differences in antitrust policies both among countries and within the same country over time. This has reflected different ideas about what constitutes a monopoly and, where there is one, what sorts of behaviour are abusive.

In the United States, monopoly policy has been built on the Sherman Antitrust Act of 1890. This prohibited contracts or conspiracies to restrain trade or, in the words of a later act, to monopolise commerce. In the early 20th century this law was used to reduce the economic power wielded by so-called "robber barons", such as JP Morgan and John D. Rockefeller, who dominated much of American industry through huge trusts that controlled companies' voting shares. Du Pont chemicals, the railroad companies and Rockefeller's Standard Oil, among others, were broken up. In the 1970s the Sherman Act was turned (ultimately without success) against IBM, and in 1982 it secured the break-up of AT&T's nationwide telecoms monopoly.

In the 1980s a more laissez-faire approach was adopted, underpinned by economic theories from the chicago school. These theories said that the only justification for antitrust intervention should be that a lack of competition harmed consumers, and not that a firm had become, in some ill-defined sense, too big. Some monopolistic activities previously targeted by antitrust authorities, such as predatory pricing and exclusive marketing agreements, were much less harmful to consumers than had been thought in the past. They also criticised the traditional method of identifying a monopoly, which was based on looking at what percentage of a market was served by the biggest firm or firms, using a measure known as the herfindahl-hirschman index. Instead, they argued that even a market dominated by one firm need not be a matter of antitrust concern, provided it was a contestable market.

In the 1990s American antitrust policy became somewhat more interventionist. A high-profile lawsuit was launched against Microsoft in 1998. The giant software company was found guilty of anti-competitive behaviour, which was said to slow the pace of innovation. However, fears that the firm would be broken up, signalling a far more interventionalist American antitrust policy, proved misplaced. The firm was not severely punished.

In the UK, antitrust policy was long judged according to what policymakers decided was in the public interest. At times this approach was comparatively permissive of mergers and acquisitions; at others it was less so. However, in the mid-1980s the UK followed the American lead in basing antitrust policy on whether changes in competition harmed consumers. Within the rest of the european union several big countries pursued policies of building up national champions, allowing chosen firms to enjoy some monopoly power at home which could be used to make them more effective competitors abroad. However, during the 1990s the European Commission became increasingly active in antitrust policy, mostly seeking to promote competition within the EU.

In 2000, the EU controversially blocked a merger between two American firms, GE and Honeywell; the deal had already been approved by America's antitrust regulators. The controversy highlighted an important issue. As globalisation increases, the relevant market for judging whether market power exists or is being abused will increasingly cover far more territory than any one single economy. Indeed, there may be a need to establish a global antitrust watchdog, perhaps under the auspices of the world trade organisation.

Let’s go back to Fred and Jill, and the willingness to buy and sell chickens. We know that Fred’s willingness to buy chicken depends upon the price he’s asked to pay; we also know that Jill’s willingness to sell chicken depends on the price she’s offered.

It’s time for another assumption. Let’s assume that there are lots of chicken buyers whose actions, when added together, result in the demand curve on the right.   Also, there are lots of chicken sellers whose actions, when added together, result in the supply curve on the right. Obviously, the quantities are in large numbers (e.g. thousands of pounds per week).

EXCESS DEMAND

Economists call this an “excess demand” – the quantity demanded is greater than the quantity supplied at the given price.   This is also called a shortage.

EXCESS SUPPLY

However, many of the buyers have disappeared (the shaded area - see right)!   They’ve substituted other food for chicken – at $4.00 per lb, their only willing to buy 2 lbs each week.   After all, at $4.00 per lb, they might as well buy steak.

Economists call this situation an “excess supply” – that is the quantity demanded is less than the quantity supplied at the given price.   This is also called a surplus.

So, if the price is too high, sellers will have leftover chickens. And, if the price is too low, buyers won’t be able to find as much chicken as they want.   In either case, the market participants will be disappointed.

Your text explains the process of reaching equilibrium – you should read it carefully.   This tutorial will help you learn to use graphical analysis to solve problems; it is not a substitute for your text.

SUMMARY

Summary so far...

• Equilibrium: the quantity people are willing to buy equals the quantity people are willing to sell at each price.
• Excess Demand: the quantity demanded is greater than the quantity supplied at the given price.   This is also called a shortage.
• Excess Supply: the quantity demanded is less than the quantity supplied at the given price.   This is also called a surplus.

SUMMARY EXERCISE

The legislature decreased the price of chicken, and it is sold at the new price represented by Qs (see right). Only Qs is available at the new, low price, and there certainly won't be enough to go around since people want to buy Qd pounds per week. At this price, quantity demanded is much greater than quantity supplied. This is a strange way to make more nutritious food available to more people!

EQUILIBRIUM SHIFT IN DEMAND

First, the demand for chicken increases as many people buy more chicken to go with their corn. Drag the demand curve to show and increase in demand.

Look at the graph carefully.   At $3.00 per lb, buyers now want to buy 5 lbs of chicken per week. Too bad – the chicken just isn’t there. The demand increased but the supply did not – sellers are willing to sell the same amount of chicken at $3.00 per lb as they were before the corn price changed.

As the buyers try to buy more chicken they offer the sellers more money. After all, they like chicken more than they did last week.

As the buyers offer more money, the sellers realize that they can afford to raise more chickens.

This process stops when the willingness to buy chicken equals the willingness to sell chicken at the current price.   On this graph, that seems to be about 4 lbs at about $4.00 per lb. Verify this with the table. At $4.00, Qd’ is 4 (Demand Table) and quantity is 4 on the supply table.

Suppose a famous TV cooking instructor produces a series called “101 Ways to Cook Chicken.” It’s a big hit, and people increase their consumption of chicken.   What changes in the chicken market?  

Demand increases. The new equilibrium is indicated on the graph (see left).

EQUILIBRIUM SHIFT IN SUPPLY

First, the supply of chicken decreases as sellers find it more expensive to raise chickens. Look at the graph carefully.   Notice that the price of chicken hasn’t risen so that sellers now want to sell only 1 lb of chicken per week. But buyers are willing to buy 3 lbs of chicken at $3.00 per pound.   There are a lot of unhappy chicken-eaters out there!   They want more chicken, and they’re willing to pay for it.

As the buyers offer more money, the sellers realize they can afford to sell more chicken. This process stops when the willingness to buy chicken equals the willingness to sell chicken at the current price. On the graph, that seems to be about 2 lbs at about $4.00 per lb.

Let’s see what happens when refrigerated railroad cars become available for shipping chicken to market.   If you remember, from the supply section, this decreased the costs of production and increased supply. The graph on the left illustrates the change in supply and the new equilibrium.

Remember the babysitters? Let’s look at them again. There’s a new, hit play in town for only two nights. Everyone wants to see it but it’s not really suitable for children. What changes in the babysitter market?  

The demand increases. The graph on the right illustrates the change in demand and the new equilibrium.

Gizmo Corporation just signed a new contract with its labor union. Wages have gone up! Which segment of the Gizmo market is affected?

The supply increases. Gizmo corporation is willing to sell fewer Gizmos at each price now that wages have risen. The graph on the left illustrates the new equilibrium, where the willingness buyers to buy Gizmos equals the willingness of sellers to sell Gizmos.

The price of donuts just went up and the guys aren’t stopping at the donut shop for coffee and donuts anymore. Which segment of the coffee market changes?

The demand for coffee decreased because coffee and donuts are compliments. The graph on the right illustrates the new equilibrium.

There was a freeze in the Sunbelt and many crops were damaged. What do you think happened to the price and quantity of oranges? First, which segment of the market was affected?

Sellers are willing to sell more oranges at each price. This is an increase in supply. The graph on the left illustrates the new equilibrium, where the willingness buyers to buy oranges equals the willingness of sellers to sell oranges.

Winter is on the way, and forecasters are predicting snow. What do you think will happen to the price and quantity of snow blowers? Which segment of the market for snow blowers was affected?

This is an increase in demand. People are more willing to buy more snow blowers at each price because expectations have changed. The graph on the right illustrates the new equilibrium, where the willingness buyers to buy snow blowers equals the willingness of sellers to sell snow blowers.

EXERCISE 6

The graph on the left shows the new equilibrium. Again the political solution leads to fewer snowblowers available for purchase. The lower price has the opposite result to what was intended. The shaded area is the shortage of snowblowers. After all, at the higher price, Qe' (the new equilibrium quantity) would have been offered for sale; now only Qs' is available.

EXERCISE 7

The price. The willingness of buyers to buy and sellers to sell has not changed. Qs', as illustrated by the chart on the right, shows how much will be sold. While the purpose of the legislation was to increase the availability of milk, the new quantity offered for sale is less than the equilibrium quantity. Milk producers would rather pour the milk onto the roads than take it to market at that price. This is an excess demand or shortage of milk.

Well, if a low milk price produces a shortage of milk, maybe what we need are price supports – that is a legislated price that is above equilibrium. Which segment of the market will be affected?

The price. The willingness of buyers to buy and sellers to sell has not changed. Qd, as illustrated by the chart on the left, shows how much will be sold. Now there's plenty of milk, but it's too expensive for consumers. Of course, the government could buy all the surplus milk at the new, high price and give it to poor people, but other consumers would have to pay both more for milk and more taxes! It might be more efficient to use another method of increasing the food budget of the poor (e.g. food stamps).

EXERCISE 9

Demand for tickets increases as more people want to go to the games (change in tastes). The graph on the right illustrates the new equilibrium, where the willingness buyers to buy tickets equals the willingness of sellers to sell tickets.

The federal government supports the price of wheat to support the income of farmers. How does this affect the consumer? The taxpayer? First, which segment of the wheat market is affected?

The price. The willingness of buyers to buy and sellers to sell has not changed. Qd', as illustrated by the chart on the left, shows how much will be sold. The price is higher than at equilibrium and the quantity is lower (this increases the price of bread, etc., to consumers). Notice that the farmers are encouraged to grow extra wheat - wheat which the taxpayers will buy for 'surplus' (the shaded area).

EXERCISE 11

Sellers are willing to sell more cars at each price. This is a change in supply. The graph on the right illustrates the new equilibrium, where the willingness of buyers to buy cars equals the willingness of sellers to sell cars.

Many politicians are in favor of minimum wage laws – others are opposed.   Do minimum wage laws help or hurt the poor?   Let’s see what supply and demand can tell us. Which segment of the market is affected?

Price! The willingness of employees to work and of employees to hire them is unchanged at each wage level. Qd', as illustrated by the chart on the left, shows how many will be hired. At the higher wage, those who manage to get a job are better off; however many more people will be looking for work than will be hired. Again, there are fewer people being hired (decrease in quantity demanded) and more people in the job market (increase in quantity supplied). The shaded area is the amount of unemployment.

EXERCISE 13

The willingness of buyers (borrowers) to buy (borrow) and sellers (lenders) to sell (lend) at each price has not changed - only the price has changed. Qs', as illustrated by the chart on the right, shows how many loans will be granted. Only a fraction of the loans people want will be available. Notice that people who would not otherwise have gone househunting now want loans in addition to those who would want loans at the higher rate. Notice also that the new, lower rate excludes some people who would have borrowed even at the higher rates. This prevented a lot of home sales (shaded area).

Homelessness is an increasing problem in many of our cities.   Would rent controls help the homeless?   Or, would rent controls make the problem worse? Perhaps we can learn something through supply and demand analysis. Which segment of the market for housing is affected by rent control?

The willingness of buyers to buy and sellers to sell at each price has not changed - only the price has changed. Qs', as illustrated by the chart on the left, shows how many apartments will be for rent. At the controlled, low price of housing, people want additional housing (kids move away from home, people move in and from other places, etc.). At the same time, owners are less willing to rent - they may allow their relatives to live there, they may stop maintenance, they certainly won't build additional housing. The shaded area is the excess demand for housing - the homeless.

What economic term refers to the amount of some goods?

What is demand for goods in economics?

What is the term for total demand for all goods and services within an economy?

Which economic principle is related to supply and demand?