Demand and Supply: notes

Demand

• Law of demand: when price rises, quantity demanded falls, other things equal.
• Movement along the curve: caused only by a change in the good's own price.
• Shift of the curve: caused by income, tastes, the price of related goods or population.
• Substitutes: if the price of bread rises, demand for rice may rise. Complements: tea and sugar are used together.

Supply

• Law of supply: when price rises, quantity supplied rises.
• Shifts in supply: caused by cost of inputs, technology, taxes, subsidies and weather.

Equilibrium and elasticity

• Equilibrium price: where demand equals supply. Above it there is a surplus; below it there is a shortage.
• Price elasticity of demand: percentage change in quantity demanded divided by percentage change in price.
• Elastic: more than 1, so people react strongly. Inelastic: less than 1, as with salt or medicine.