Microeconomics

The law of demand states that, ceteris paribus, as the price of a good increases, the quantity demanded decreases, and vice versa.

The law of supply states that, ceteris paribus, as the price of a good increases, the quantity supplied increases, and vice versa.

The equilibrium price is the price at which the quantity demanded equals the quantity supplied in a market.

Factors such as changes in income, tastes, prices of related goods, expectations, and the number of buyers shift the demand curve.

Factors such as changes in input prices, technology, expectations, number of sellers, and government policies shift the supply curve.

if set below equilibrium, it causes a shortage.

if set above equilibrium, it causes a surplus. Example: minimum wage.

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay, represented by the area below the demand curve and above the price.

Producer surplus is the difference between the market price and the minimum price producers are willing to accept, represented by the area above the supply curve and below the price.

Deadweight loss is the reduction in total surplus that results from a market distortion such as a tax, price control, or monopoly pricing.

PED measures the responsiveness of quantity demanded to a change in price: PED = % change in Qd / % change in P.

Demand is elastic: quantity demanded changes by a larger percentage than the price change. Consumers are highly responsive to price.