Demand curve consumers will buy more when prices fall inverse proportional Law of demand other things equal as price falls quantity demanded rises Diminishing marginal utility as consumer increases consumption of G S utlity obtained from each additional unit decreases Income effect change in price of product changes consumer s real income purchasing power and therefore quantity of G S purchased Substitution effect at lower price buyers would buy ONE product over a similar one just because the price has fallen Determinants of demand consumers taste preferences number of consumers in market consumer income prices of related goods consumer expectations normal goods products where demand varies directly with income inferior goods demand varies INVERSELY with income substitute good one can be used in place of another good complementary good one used together with another good increase in demand can be caused by favourable change in consumer taste increase in buyers increase in income if normal good falling in income if inferior good increase in price of substitute decrease in price of complementary new expectation that price and income will be higher in future change in demand change in entire curve curve move R L vs change in quantity demanded MOVEMENT FROM ONE POINT TO ANOTHER ON DEMAND CURVE on same curve just diff point Law of supply price rises quantity supplied rises PROPORTIONAL Marginal cost cost of producing one more unit of output Determinants of supply factor prices technology taxes and subsides prices of other goods prices expectations of sellers in market change in supply vs change in quantity supplied equilibrium price market clearing price price where intentions of buyers and sellers match price demanded quantity supplied surplus amt supplied exceed demanded at specific above equilibrium price shortage amount by which quantity demanded exceeds supplied below equilib rationing function of prices ability of competitive forces of supply and demand to establish a price which selling and buying decisions are consistent at equlibium productive efficiency production of G S is in least costly way possible allocative efficiency mix of G S most valued by society distribution of resources among firms and industries to produce G S most wanted by society giving ppl what they most want in the most effective way MB MC complex cases of DEMAND AND SUPPLY price ceiling max legal price a seller can charge eg Rent control ceiling price must be below equilibrium price anything more would produce a shortage demand starts falling after POINT interest rate ceiling on credit cards may result in many effects in book price floor min price fixed by gov eg Wages anything more would be surplus
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