You are on page 1of 22

AP ECON

KAIROS REVIEW

DEMAND AND INCOME EFFECTS


NORMAL GOOD
INFERIOR GOOD OR BAD

A good that is consumed more An inferior good varies inversely


when income increases. Or vice with the income effect. When
versa, a good that is consumed income increases you consume
less when income decreases.
less of the inferior good.
Conversely, you consume more
when your income decreases.

EXAMPLES
NORMAL

INFERIOR

NORMAL GOODS

INFERIOR GOOD
VS NORMAL GOOD
Good X is the inferior good
Good Y is the normal good

DEMAND CURVE

A Change in Demand:

Change in quantity Demanded:

A shift in the demand curve

Is a movement along the fixed


demand curve.

Consumers (aggregate demand)


behavior have been influenced
by determinants of demand

Moving from point x to point y

.
Notice as price goes
down my demand for
coffee increases


Notice that its an actual
shift of the demand curve

DEMANDS AKA:
Is a schedule or a curve showing the amount of a
product that buyers are willing and able to purchase, in
a particular time period, at each possible price in a
series of prices.

LAW OF DEMAND
Other things held equal, ceteris paribus, the quantity
of a good purchased varies inversely with the price

RELATED GOODS
SUBSTITUTE GOOD

COMPLEMENTARY GOOD

Is one that can be used in


place of another good

Is one that is used together


with another good

DETERMINANTS OF DEMAND
A change in buyers:

Taste: i.e. EV cars become more popular.


The # of buyers: i.e. the avg. lifespan increases.
Consumer income: i.e. you get a raise
Change in the prices of substitutes or complements: i.e.
airfare cost decreases might decrease the demand for the bus
Consumer expectations: i.e. increase in gas prices

THE SUPPLY CURVE

SUPPLY CURVE

A Change in Supply:

Change in quantity Supplied:

A shift in the supply curve

Is a movement along the fixed


supply curve.

Suppliers (aggregate supply)


behavior have been influenced
by determinants of supply

Moving from point x to point y

DETERMINANTS OF SUPPLY
A change in supply due to a change in:
Resource Prices: i.e. micro processors become cheaper
Tech: i.e. when cable internet was introduced
Taxes and Subsidies: i.e. raise, tax on tobacco

Change in the prices of other goods or substitution of production: i.e. when the
price of cucumbers increase, then the supply of watermelons decreases
Consumer expectations: i.e. a substantial increase in the future price of logs will
decrease the supply of logs today

The number of suppliers: i.e. increase in marijuana dealers


Notice that its an actual
shift of the supply curve

.
Notice as the price
increases, suppliers will
produce more quantities.

LAW OF SUPPLY
Other things held equal, ceteris paribus, the quantity
of a good supplied varies directly with its price

Last note on supply curves:


SCs show the amount of a product that suppliers
are willing and able to offer for sale, in a given time
period., at each possible price in a series of prices

MARKET EQUILIBRIUM
The intersection of the
downward sloping demand
curve and the upsloping
supply curve indicates the
equilibrium price and
equilibrium quantity.

COMPARATIVE MARKETS:
PRODUCTIVE EFFICIENCY

The production of any


good in the least costly
way

ALLOCATIVE EFFICIENCY
The production of a
particular mix of goods and
services most highly valued
by society

COMPLEX CHANGES IN SUPPLY AND DEMAND


Effects on
EQ price

Effects on
EQ quantity

Increase

Decrease

Decrease

Indeterminate

Decrease

Increase

Increase

Indeterminate

Increase

Increase

Indeterminate

Increase

Decrease

Decrease

Indeterminate

Decrease