Review Notes - Demand and Supply

- Demand Defined

- definition

- the law of demand (as P increases => Q_d decreases)

- Why?

- substitution effect

- income effect

- absolute vs. relative price for the law of demand

- market demand

- Other influences on Demand

- tastes and preferences: as they increase => D increases and reverse

- income (Y)

- normal goods: as Y increases => D increases and reverse

- inferior goods: as Y increases => D decreases and reverse

- the price of related goods

- substitutes in consumption: as P_s increases => D increases and reverse

- complements in consumption: as P_c increases => D decreases and reverse

- the number of demanders (buyers) in a market: as # increases => D increases and reverse

- expectations about the future: if expect P increase in the future => D increases in the present and vice versa

- Change in Demand (D) vs. change in Quantity Demanded (Q_d)

- Supply Defined

- definition

- the law of supply (as P increases => Q_s increases )

- market supply

- Other influences on Supply (besides the good's own price)

- costs of production: as costs increases => S decreases and reverse

- technology: as tech. increases => costs decrease and reverse

- input prices: as input prices increases => costs increase and reverse

- the price of related goods

- substitutes in production: as P_s increases => S decreases and reverse

- complements in production: as P_c increases => S increases and reverse

- the number of suppliers (firms) in a market: as # increases => S increases and reverse

- expectations about the future: if expect P increases in the future => S decreases in the present and vice versa

- Change in Supply (S) vs. change in Quantity Supplied (Q_s)

- Demand and Supply as flow variables (vs. stock variables)