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Law of demand
there is a negative/inverse relationship between the price of a good and quantity demanded of good, ceteris paribus (as price increases, quantity demanded decreases; as price decreases, quantity demanded increases)
negative/inverse relationship between price of a good and quantity demanded of good
as price increases, quantity demanded decreases; as price decreases, quantity demanded increases
non-price determinants of demand
tastes/preferences (popularity),
consumer income (normal/inferior goods),
prices of related goods (substitutes/complements),
number of buyers, consumer expectations
tastes/preferences
popularity increases, demand increases, demand curve shifts to right;
popularity decreases, demand decreases, demand curve shifts to left
popularity increases
demand increases, demand curve shifts to right
popularity decreases
demand decreases, demand curve shifts to left
normal good
good for which income & demand are postively related; income increases, demand increases; income decreases, demand decreases
income increases
demand for normal good increases but demand for inferior good decreases
income decreases
demand for normal good decreases but demand for inferior good increases
inferior good
good for which income & demand are negatively related; income decreases, demand increases; income increases, demand decreases
consumer income
non-price determinant of demand related to normal and inferior goods
prices of related goods
non-price determinant of demand related to substitutes and complements
substitutes
goods for which there’s a positive relationship between price of good & demand for related good; price of good increases, demand increases; price of good decreases, demand decreases
complements
goods for which there’s a negative relationship between price of good & demand for related good; price of good increases, demand decreases; price of good decreases, demand increases
price of related good increases
demand for substitutes increases but demand for complements decreases
price of related good decreases
demand for substitutes decreases but demand for complements increases
number of buyers
positive relationship between # of buyers & demand of particular good
consumer expectations
can affect current/future demand of good
movement along demand curve
caused by change in price & leads to change in quantity demanded
shift in demand curve
caused by any non-price determinant & leads to change in demand
law of supply
there’s a positive/direct relationship between price of good & quantity supplied of good, ceteris paribus (as price increases, quantity supplied increases; as price decreases, quantity supplied decreases)
positive/direct relationship between price of good & quantity supplied of good
as price increases, quantity supplied increases; as price decreases, quantity supplied decreases
non-price determinants of supply
technology,
resource costs,
acts of nature,
number of sellers,
producer expectations
technology
improvements/advancements lead to increase in quantity of supply; shift to right
resource costs
increase in production costs leads to decrease in quantity of supply; shift to left
acts of nature
depends on type, can lead to increase/decrease in quantity of supply
number of sellers
increase of producing good, quantity of supply also increase & vice versa
producer expectations
if suppliers expect higher price in future, they’ll want to sell less now to sell more later to gain more revenue
movement along supply curve
caused by change in price & leads to change in quantity supplied
shift of supply curve
caused by any non-price determinant & leads to change in supply
equilibrium
occurs at the price in which quantity demanded & quantity supplied are equal
shortage
price is below equilibrium price & results in quantity demanded > quantity supplied
surplus
price is above equilibrium price & results in quantity supplied > quantity demanded
