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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.” |
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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. |
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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 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. |
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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. |
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Relationship between Price & Quantity Demanded
- Prices and quantity demanded are inversely proportional. |
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- The curve is downward sloping as a result of the substitution and income effect. |
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- 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: |
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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 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.” |
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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. |
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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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Shift in the Demand Curve Ref.
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 |
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