supply and demand

demand

amount of goods/services that buyers are willing to buy at a particular price

supply

amount of goods/services suppliers are willing to sell at a particular price

law of demand

when price increases the quantity demanded decreases

income effect

as price increases, real incomes fall

substitution effect

as price decreases for one good consumers may switch to it from higher priced substitution

exceptions for substitution effect

-SR may be costly to increase prod

-in LR high price may incentive may cause new firms to enter

-S curve may be vertical in SR if fixed qty available

-S curve may slope down in LR if EOS achieved

when is there excess supply

when P > P*

when is there excess demand

when P < P*

pareto efficiency

when it is not possible to make someone better off without making someone worse off. not always fair

determinants of demand

-price of related goods

- consumer incomes

-preferences

determinants of supply

-tech

-cost of input

-num of suppliers

-expectations

-weather