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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.” |
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Supply Curve |
a graph of the relationship between the price of a good (P) and the quantity supplied (S). |
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- the supply curve is upward sloping. |
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- shows the relationship between prices and quantities supplied. |
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- prices and quantity supply are directly proportional (the price increases the quantity supplied also increases). |
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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. |
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A shift in the curve is called “a change in supply.” A shift on the demand curve could occur in response to: |
1. Technology |
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Movement and Shift in the Demand Curve
A movement along the demand curve is called “a change in quantity demanded.” |
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*a movement is caused in response to a change in price of the good itself. |
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A shift in the curve is called “a change in demand.” A shift on the demand curve could occur in response to: |
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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 |
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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.” |
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Demand Curve |
a graph of the relationship between the price of a good (P) and the quantity demanded (Q). |
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Types of Goods
a. Normal Good |
a good for which an increase in income leads to an increase in demand. |
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b. Inferior Good |
a good for which an increase in income leads to a decrease in demand. |
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c. Substitute Goods |
two goods for which an increase in the price of one leads to an increase in the demand for the other. |
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- an increase in price of a substitute products, causes a rightward shift. |
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d. Complementary Goods |
two goods for which an increase in the price of one leads to a decrease in the demand for the other. |
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- an increase in price of complementary products, causes a leftward shift. |
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