1. CH. 7: DEMAND AND SUPPLY A. DEMAND 1. “The MARKETPLACE” 2. DEMAND 3. MARKET 4. VOLUNTARY EXCHANGE 5. LAW OF DEMAND (P QD )

2. DEMAND (CONTINUED) 6. REAL INCOME EFFECT (INFLATION) a. NORMAL GOODS b. INFERIOR GOODS 7. SUBSTITUTION EFFECT (SATISFACTION) B. GRAPHING DEMAND 1. The GRAPHS 2. CHANGE IN QUANTITY DEMANDED 3. CHANGE IN DEMAND 4. DEMAND DETERMINANTS a. population b. income c. taste/preferences d. substitutes e. complementary goods

3. DEMAND (CONTINUED) C. ELASTICITY OF DEMAND 1. ELASTICITY-responsiveness to a percent change in price. 2. ELASTIC DEMAND-price has influence of demand. (subs and alternatives) 3. INELASTIC DEMAND-price has little influence (needs).

4. SUPPLY D. SUPPLY 1. LAW OF SUPPLY P QS 2. PROFIT INCENTIVE 3. THE GRAPHS 4. CHANGE IN QUANTITY SUPPLIED 5. CHANGE IN SUPPLY

5. SUPPLY (CONTINUED) 6. SUPPLY DETERMINANTS a. price of F.O.P. b. # of Firms c. Taxes d. Technology e. Mother Nature 7. DIMINISHING RETURNS (LAW)

6. EQUILIBRIUM E. EQUILIBRIUM 1. PRICES AS SIGNALS 2. SHORTAGES (QD > QS) 3. SURPLUS (QS > QD) 4. PRICE CEILING (MAXIMUM PRICE-HELPS CONSUMER) 5. PRICE FLOOR (MINIMUM PRICE-HELPS PRODUCER)