Demand- is shown on a schedule or curve that represents the willingness and ability of

all buyers in a market to buy a particular good at a range of prices during the particular period of
time
Law of Demand- At higher prices, consumers generally demand a lower quantity and
vice versa
*Inverse relationship between price and quantity demand
*Curve is downward sloping
*Why is Demand downward sloping? Because Income Effect, Substitution Effect, Law of
Diminishing Marginal Utility
Income effect- states that changes in price affect the purchasing power of
consumers income
Substitution effect- Sates the rational buyers will have an incentive to purchase
substitute goods at a lower relative goods
Law of Diminishing Marginal Utility- Satisfaction decreases as consumption of a
good particular good increases. Goods lose usefulness each time you
consume/purchase another
*Utility- Usefulness
*Marginal Utility
The usefulness of one additional unit
The satisfaction we get from consuming an additional unit of product
The Determinates of Demand
Taste and preferences
Income and consumers
Related goods
Expectations of goods
Size of population of market
*Taste and Preferences
Consumers may clamor an item one year and ignore it the next
The clothing industry is particularly vulnerable to quickly changing styles
*Income and Consumers
Normal Goods- Most products are considered normal goods. Things like steak,
cars, and computers are all goods consumers purchase more of with an increase of
income
Inferior Goods- Some goods have opposite effect. An income reaches a certain
point, some products become less appealing
*Related Goods
A change in price of a related good can increase or decrease demand. There are
typically two types of goods: Subsitute Goods- Can be used or purchased in replace of
another good & Complementary Goods- Are often purchased and used together
*Expectations of Goods
Typically consumer expectations will change current demand
*Size of population of a Market
Ex: More babies = More demand for babies
Supply- Is shown as a schedule or curve showing the various amounts of a product that
producers are willing and able to make available for each sale at each series of possible prices
during a specific period.
Law of Supply- Idea prices go up and quantity goes up.
*Why is Supply upward sloping? Because an increase in price is an incentive for sellers to sell
more products!

*A price change means there is movement along the supply curve/ When price is lowered
supply is also lowered.
The Determinants of Supply
Productivity
Producer expectations
Inputs
Number of sellers
Government regulation
*Productivity/Technology
Improved production of G&S
Makes G&S more cheaply
Leads to more productivity and efficiency
*Producer Expectations
If producers expect they can sell a good for a higher price in the near future,
supply will increase now.
If producers expect they can sell a good for a lower price in the near future,
supply will decrease now.
*Cost of inputs/Factors of Production
If cost of a factor of production increases, supply will decrease
More expensive to produce goods
If cost of a factor of production decreases, supply will increase
Less expensive to produce good
*Number of Sellers
Increase in the number of businesses in the market will increase the supply of a
good
Decrease in the number of businesses in the market will decrease the supply of a
good
*Government: Regulations or Taxes
Increase in government regulations or taxes on businesses decease supply
Decrease in government regulations or taxes on businesses increases supply
Increase in government subsidies for businesses increases supply
Decrease in government subsidies for business decreases supply
Equilibrium: When Supply and Demand meet
-Demand curve is going down
-Supply curve is sloping upward
*This situation occurs when the quantity supplied is equal to the quantity demanded
Prices:
Consumers try to minimize costs
Producers wants to maximize profits
Prices are determined where supply meets demand
The point where supply curve hits the demand curve is called EQUILIBRIUM
Market Equilibrium:
The price where the quantity of supply = quantity demanded
Equilibrium quantity
The quantity supplied and demanded at Equilibrium price
Equilibrium price & quantity are determined by where supply meets demand
Shortages
Shortages exist when the quantity demanded is greater than the quantity
supplied

Qd>Qs
Occurs when price is set BELOW the equilibrium price

Surpluses
exist when the quantity supplied is greater than the quantity demanded
Qs>Qd
Occurs when price is set ABOVE the equilibrium price
Government Interventions
-Types of Government Interventions
*Price ceilings: Sets a maximum legal price a seller may charge for goods or service. This
allows consumers to obtain, essential goods or services that they could not afford at
equilibrium price.
An effective price ceiling is set BELOW equilibrium price
*Ceilings create a situation called disequilibrium, where consumers are willing to pay more
than the price ceiling. This often forces markets top ration products or create black markets.
*Price Floors:Is a minimum price fixed by the government. These supported prices often
protects producers by keeping prices from falling to low.
An effective price floor is set ABOVE equilibrium price
*Nothing can go ABOVE the ceiling
*Nothing can go BELOW the floors

Video Notes
Price floors are to help sellers
To get rid of surplus the government can buy it and distributing it or the the
suppliers can throw it away
Price ceiling: a maximum legal price for the market