Supply and Demand Flashcards
Law of demand
The quantity demanded rises as price falls (for normal goods), ceteris paribus
Movements along the demand curve
A change in price -> demand is the same but quantity demanded changes as the price changes
Shifts in the demand curve
Change in income, change in price of substitutes/complement goods, change in taste, change in expectations about income or price levels
Law of supply
Quantity supplied rises as price rises, ceteris paribus
Movements along supply curve
Change in price -> supply is still the same, but quantity supplied changes as price changes
Shifts in supply curve
Change in production costs, change in technology, change in supplier expectations about future price, change in taxation/subsidies
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
Complements
If price of a good rises, demand for its complement will fall
eg: shampoo and conditioner
Relationship between demand and price caused by 2 main effects:
Income effect: a change in price affects overall purchase power
Substitution effect: a change in price leads to changes in purchasing of substitute goods
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
Types of goods
Normal goods (most goods)
Inferior goods (generic label foods)
Giffen goods (Potatoes in Irish Famine)
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
Substitutes
If price of a good rises, the demand for its substitutes goods will rise
eg: Coke/Pepsi
