Supply and Demand

Normal goods

A type of goods for which demand increases as income increases.

Inferior goods

A type of goods for which demand decreases as income increases.

Substitutes

Goods that can be used in place of each other; if the price of one rises, the demand for the other increases.

Complements

Goods that are typically consumed together; if the price of one rises, the demand for the other decreases.

Demand Curve Shift

A change in the quantity demanded at every price due to factors other than the price of the good itself.

Supply Curve Shift

A change in the quantity supplied at every price due to factors other than the price of the good itself.

Simultaneous Shifts

Occurs when both demand and supply curves shift; the changes in price and quantity become uncertain unless movements are in the same direction.

Shortage

A market condition where demand exceeds supply.

Surplus

A market condition where supply exceeds demand.

Demand and Price Relationship

When demand increases, price and quantity move together; when demand decreases, they also move together.

Supply and Price Relationship

When supply increases, price decreases and quantity increases; when supply decreases, price increases and quantity decreases.

Exam Strategy

Steps to analyze market changes: identify demand shifts, identify supply shifts, determine effects on price and quantity, and compare for certainties.