Ch3 Demand and supply

Law of demand
When the price of a good increases, the quantity demanded of the good decreases, vice versa, ceteris paribus.
Law of supply
When the price of a good increases, the quantity supplied of the good increases, vice versa, ceteris paribus.

Excess demand/Shortage Excess supply/Surplus

1. Price< P e 1. Price> P e
2. Q d >Q s 2. Q s >Q d
3.There is an upward pressure on the price 3.There is a downward pressure on the price

Relative price
O = p1, L = p2
Relative price of O = p1/p2
Relative price of L = p2/p1

Answer format
Law of demand
+
When the same amount of cost (e.g. tax) is added to each unit (e.g. bottle), then the relative price of higher-quality good
(in terms of lower-quality good) will decrease while the relative price of lower-quality good (in terms of higher-quality
good) will increase. The law of demand then implies that people would buy more higher-quality goods relative to
lower-quality goods
+
1. The proportion of higher-quality goods sold in the market would increase
2. Average quality of goods increase