Chapter 4 blog

Chapter 4 is mostly about supply and demand and how the two are connected. Early in the chapter Mankiw brings up the correlation between prices and demand. As prices go up people want to buy less since the goods are more expensive and as the prices go down people want to buy more since the goods are less expensive. This is called the Law of demand. This law of demand can be graphed to create a demand curve which is sloped downwards. The demand curve can shift depending on many variables such as prices of related goods and peoples tastes. After bringing up the correlation between prices and demand Mankiw brings up the correlation between prices and supply. The law of supply is that the higher the prices are the more profitable something is so the supply is higher. The lower the prices are the less profitable something is so supply is lower. This's can also be graphed into a supply curve which slopes upward. The supply curve can shift from variables such as innovations in technology and future expectations of prices. The demand curve and supply curve can both be put on a graph and where they meet is the market equilibrium. At this point the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell. I would give this chapter a 2/3. The beginning is easy to understand, but as we move on to equilibrium and movements of the equilibrium it gets confusing. I also have a question on the law of supply. If something is less profitable wouldn't the firm want to increase the supply so more can be sold and make something profitable again?