Macro - Demand and Supply

Income effect: A decrease in price increases real income, allowing consumers to buy more of a good; an increase in price reduces real income, leading to less purchase. This contributes to the downward-sloping demand curve.
Substitution effect: Consumers shift towards cheaper goods when prices fall, and away from more expensive goods when prices rise. This also contributes to the downward-sloping demand curve.
Movement along demand curve: Caused by a change in the good's own price (change in quantity demanded).
Shift of demand curve: Caused by non-price determinants like income, advertising, or prices of substitutes/complements (change in demand).

Price is what the product sells for; cost is what the producer incurs.
Producers supply if the selling price exceeds their cost per unit, with higher profit margins incentivizing greater supply.
The supply curve is upward-sloping, showing a direct relationship between price and quantity supplied.
Movement along supply curve: Caused by a change in the good's own price (change in quantity supplied).
Shift of supply curve: Caused by non-price determinants like production costs, technology, or input prices (change in supply). Lower costs shift supply right; higher costs shift left.

Equilibrium: Occurs where quantity demanded (Q^d) equals quantity supplied (Q^s) at the equilibrium price (Pe) and quantity (Qe). This is the intersection of the demand and supply curves.
Disequilibrium:
- Surplus (excess supply): Price is above equilibrium (P > P_e), so Q^s > Q^d. Sellers face downward pressure on price.
- Shortage (excess demand): Price is below equilibrium (P < P_e), so Q^d > Q^s. Buyers face upward pressure on price.
Price adjustments: Market prices naturally adjust to eliminate surpluses (by falling) and shortages (by rising), moving towards equilibrium.
A shortage causes price to rise, which simultaneously increases quantity supplied and decreases quantity demanded until equilibrium is restored, rather than further decreasing quantity demanded.

Demand curves slope downward due to income and substitution effects.
Supply curves slope upward due to cost and profit motivations.
Movements along curves are price-driven; shifts of curves are caused by non-price determinants.
Equilibrium is the market-clearing price where buyers' and sellers' intentions match.