**Class:** Economics 201

**Topic:** Supply and Demand

**Note:** Supply and demand are fundamental concepts in economics that help explain the
determination of prices and quantities in markets. The law of demand states that, ceteris paribus
(all other things being equal), as the price of a good or service increases, the quantity demanded
decreases, and vice versa. This inverse relationship between price and quantity demanded can be
attributed to the income effect and substitution effect.

Conversely, the law of supply states that, ceteris paribus, as the price of a good or service
increases, the quantity supplied increases, and vice versa. This direct relationship between price
and quantity supplied can be explained by the profit motive of producers: as prices rise,
producers are incentivized to supply more of the good or service to maximize profits.

Equilibrium in a market occurs when the quantity demanded equals the quantity supplied,
resulting in a stable market price. Changes in supply and demand factors can shift the
equilibrium price and quantity, leading to market disequilibrium and adjustments over time.

Understanding supply and demand dynamics is crucial for analyzing market behavior, predicting
price changes, and making informed decisions in various economic contexts.