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E2 - Market Forces of Supply and Demand Cheat Sheet (DRAFT) by

Economics Chapter 2 - Market Forces of Supply and Demand.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Relati­onship between Price & Quantity Supplied

Law of Supply
"the quantity supplied of a good rises when the price of the good rises.”
 
Supply Curve
a graph of the relati­onship between the price of a good (P) and the quantity supplied (S).
 
- the supply curve is upward sloping.
 
- shows the relati­onship between prices and quantities supplied.
 
- prices and quantity supply are directly propor­tional (the price increases the quantity supplied also increa­ses).
 
A movement along the demand curve is called “a change in quantity supplied.” A movement is caused in response to a change in price of the good itself.
 
A shift in the curve is called “a change in supply.” A shift on the demand curve could occur in response to:
1. Technology

Movement and Shift in the Demand Curve

A movement along the demand curve is called “a change in quantity demanded.”
 
*a movement is caused in response to a change in price of the good itself.
 
A shift in the curve is called “a change in demand.” A shift on the demand curve could occur in response to:
 
1. Change in Income
An increase in income would cause an increase in demand for normal goods (rightward shift) and a decrease in demand for inferior goods (leftward shift).
2. Change in prices of comple­mentary and substitute products.
3. Change in tastes and prefer­ences.
4. Change in expect­ations

Demand Curve

 

Relati­onship between Price & Quantity Demanded

Law of Demand
"When the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.”
 
Demand Curve
a graph of the relati­onship between the price of a good (P) and the quantity demanded (Q).

Supply Curve

 

Types of Goods

a. Normal Good
a good for which an increase in income leads to an increase in demand.
 
b. Inferior Good
a good for which an increase in income leads to a decrease in demand.
 
c. Substitute Goods
two goods for which an increase in the price of one leads to an increase in the demand for the other.
 
- an increase in price of a substitute products, causes a rightward shift.
 
d. Comple­mentary Goods
two goods for which an increase in the price of one leads to a decrease in the demand for the other.
 
- an increase in price of comple­mentary products, causes a leftward shift.

Market Demand Curve

Shifts in Demand