quantity: a quantity of a good or service, or a quantity of labor for a given job, or a quantity of financial capital. The

vertical axis shows a measure of price: the price of a good or service, the wage in the labor market, or the rate of

return (like the interest rate) in the financial market.

The demand and supply model can explain the existing levels of prices, wages, and rates of return. To carry out such

an analysis, think about the quantity that will be demanded at each price and the quantity that will be supplied at

each price—that is, think about the shape of the demand and supply curves—and how these forces will combine to

produce equilibrium.

We can also use demand and supply to explain how economic events will cause changes in prices, wages, and rates

of return. There are only four possibilities: the change in any single event may cause the demand curve to shift right
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