Market Equilibrium Notes

Law of Demand: Price and quantity demanded move in opposite directions.
- As price goes up, quantity demanded goes down.
- As price goes down, quantity demanded goes up.
Substitution Effect: Consumers switch to cheaper alternatives when a price increases.
Income Effect: Price changes affect consumers' feeling of wealth, altering consumption.
Normal Good: Demand increases with income, decreases when income decreases.
Inferior Good: Demand decreases with income, increases when income decreases.
Substitutes: Increase in the price of one good increases demand for the other.
Complements: Increase in the price of one good decreases demand for the other.
Shift of the Demand Curve: Change in the amount people are willing and able to buy at every price.
Factors that shift the demand curve:
- Tastes and preferences
- Income
- Prices of related goods
- Expectations
- Number of buyers
Change in Quantity Demanded: Movement along the demand curve due to a price change.

Law of Supply: An increase in the price of a good leads to an increase in the quantity supplied.
Supply Schedule: A table listing the quantity of a good that will be supplied at specified prices.
Supply Curve: A graphical representation of the supply schedule.
Perfect Competition: Many firms selling identical goods, free entry and exit, full information.
Shift of the Supply Curve: Change in the quantity supplied at every price.
Factors that shift the supply curve:
* Cost of inputs
* Government policies (taxes, regulations, subsidies)
* Number of firms
* Technological change
* Natural disasters and weather
* Expectations about future prices
Mnemonic: "P.I.G. T.O.E.S"
- Productivity
- Inputs
- Government Actions
- Technology
- Outputs
- Expectations
- Size of Industry