Question

“In the corn market, demand often exceeds supply, and supply sometimes exceeds demand.” “The price of corn rises and falls in response to changes in the supply and demand.” In which of these two statements are the terms “supply” and “demand” used correctly? Explain.

Short answer

In the statement, “The price of corn rises and falls in response to changes in supply and demand,” the terms “supply” and “demand” are used correctly as it shows how demand and supply affect the price in the corn market.

Step-by-step solution

Demand and supply forces

The demand is created by buyers or consumers who are willing and able to buy a good, and supply is created by sellers who are selling the goods to create revenue.

The two parties engage in the market and create a price mechanism that ensures there is no excess supply and demand in the market.

Explanation for the statement

The price of corn will adjust to excess demand (increase in price) and excess supply (price decrease) to reach an equilibrium state. Any excess or shortage is a temporary condition and will be discontinued. The movement toward equilibrium by price changes ensures that the quantity demanded of corns is equal to the quantity supplied of corns.

In the above diagram, the price movement toward the center point where the quantity demanded is equal to quantity supplied results in equilibrium. The price changes in response to excess demand (shortage) and excess supply (surplus).