Market buyers and sellers Buyers determine demand sellers determine supply In a perfectly competitive market buyers and sellers are called price takers Quantity demanded is the amount of a good that buyers are willing and able to purchase Law of demand the quantity demanded of a good falls when the price of the good rises When the demand curve shifts to the right there is an increase in demand When the demand curve shifts to the left there is a decrease in demand Normal good decrease in income leads to a decrease in demand Inferior good demand for a good rises when income falls ex bus rides Demand good shifters income price of substitutes price of complements expectations population tastes Substitutes two goods for which an increase in the price of one leads to an increase in the demand for the other ex froyo and ice cream Complements two goods for which an increase in the price of one leads to a decrease in the demand for the other hot fudge and ice cream Only price affects the movement along the demand curve Income price of related goods tastes expectations and number of buyers shift the curve Quantity supplied amount of a good that sellers are willing and able to sell Law of supply when the price of a good rises the quantity supplied of the good also rises ex ice cream is expensive quantity increases to make greater profits ice cream price is low business is less profitable sellers produce less ice cream Supply curve shifts to the right increase in supply Supply curve shifts to the left decrease in supply Supply shifters technological innovations input prices taxes and subsidies expectations entry or exit of produces changes in opportunity cost At equilibrium price the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell aka market clearing price because at this price everyone in the market has been satisfied Surplus excess of supply and suppliers deal with this by cutting prices which then increase the quantity demanded and decrease the quantity supplied These changes represent moves along the supply and demand curves not shifts in the curves Shortage demanders are unable to buy all they want at the going price quantity demanded is greater than quantity supplied also called excess demand Sellers then raise prices without losing sales later causing demand to fall and quantity supplied to rise Law of supply and demand the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance Increase in quantity supplied can change but there can be no change in supply the supply curve Supply position of the supply curve quantity supplied amount suppliers want to sell ex weather increases demand for ice cream and drives up the price hot weather changes consumers desire to buy at any given price and shifts demand curve to the right increase in demand equilibrium price rises quantity supplied rises increase in quantity supplied is represented by movement along the supply curve Shift in supply curve change in supply Shift in demand curve change in demand Movement along a fixed supply curve change in quantity supplied Movement along a fixed demand curve change in quantity demanded