Supplies and Demands Are Independent

Although specific demands and suppliesjointly determine prices and quantities, it is important to realize that they are normally independent of each other, at least in the short run. Many peo­ple have difficulty with the idea that demands and supplies are independent. It would seem that demand depends on availability —or that supply depends on demand. The following ex­amples show that supplies and demands are nor­mally independent in the short run.

1. Supposenon-reusable "teleporter buttons" could instantly transport you anywhere you chose. Your demand price to go on the first, most valuable tour might be quite high, but it would decline steadily for subsequent journeys. Short shopping trips would be economical only if teleporters were very in­expensive. By asking how many buttons you would buy at various prices, we can con­struct your demand curve for such devices even though there is no supply.

2. Would you have made more mud pies when you were a kid if your parents had paid you a penny for each one? At two cents each, might you have hired playmates to help you? If mud pies sold for $1 each today, might you be a mud pie entrepreneur? Our point is that supply curves can be con­structed for mud pies even if there is no de­mand for them.

3. You might be willing to pay a little to hear some professors' lectures even if you did not receive college credit forgathering the pearls of wisdom they offer. Some professors, however, like to talk even more than you like to listen. A set of such demand and supply curves is illustrated in Figure 12. It is fortunate for both you and your profes­sors that your demands for their lectures are supplemented by contributions from taxpayers, alumni, and possibly your parents because only later and upon mature reflection will you realize how valuable those lectures really were.

We hope these examples convince you that specific supplies and demands are largely inde­pendent of each other and that they are rele­vant for markets only when they intersect at positive prices. Markets establish whether the in­terests of buyers from the demand side are com­patible with the interests of sellers from the supply side and then coordinate decisions where mutually beneficial exchange is possible. Keep this in mind as you study the applications of sup­ply and demand in the next chapter.

Ralph. T. Byrns, Gerald W. Stone

Ральф Т. Бернс, Джеральд В.Стоун

Lesson 7

RðE phrases (to be written out from the Russian text) for translation from page (part 1).

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