Cheatography

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

Chapter 2 Economics Notes.

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

### Demand Curve and Law

 Law of Demand “Other things equal, 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).

### Movement 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 the price of the good itself.

### The Market Demand Curve

 is derived by summing the quantities demanded at each price.

### 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 Good two goods for which an increase in the price of one leads to an increase in the demand for the other. - An increase in the price of a substitute product, causes a rightward shift. d. Complement Good two goods for which an increase in the price of one leads to a decrease in the demand for the other. - An increase in the price of comple­mentary products, causes a leftward shift.

### Relati­onship between Price & Quantity Demanded

 - Prices and quantity demanded are inversely propor­tional. - The curve is downward sloping as a result of the substi­tution and income effect. - A price increase would reduce the quantity demanded because it reduces purchasing power.

### Shift in the Demand Curve

 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 products and substitute products. 3. Change in tastes and prefer­ences. 4. Change in expect­ations.

### Supply Curve and Law

 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).

### Relati­onship between Price & Quantity Supplied

 - 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).

### Movement in the Supply Curve

 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.

### Shift in the Supply Curve

 A shift in the curve is called “a change in supply.” A shift on the demand curve could occur in response to: 1. Technology 2. Input Prices (Mater­ials, Labour, and Overhead). 3. Government Regula­tions 4. Mother Nature