AP Microeconomics Notes

Chapter 4: The Basics of Supply and Demand

  1. Introduction
    1. Basic Concepts
      1. ​Changes in demand or supply vs. changes in quantity demanded or supplied
      2. The role of competitive markets
        1. ​allows us to see how prices could function according to the design of the system
        2. price-takers
          1. firms or sellers
      3. ​​Market equilibrium
      4. ​Non-price determinants of supply and demand
      5. Simultaneous changes in demand and supply
      6. Government induced changes in the form of price ceilings and floors
  3. ​​Competitive Markets
    1. ​Principles
      1. Sellers or firms are price-takers
        1. any one firm or group of firms can’t significantly alter the terms or exchange or transaction terms (the price)
        2. must sell at the market price
          1. ​the price established by the interaction of all buyers and sellers in a market setting
    2. ​​​The Function of Prices
      1. ​Disciplinarians
        1. ​competitive pressures to keep prices down to the market norm of efficiency
      2. ​Signals
        1. ​the what, when, how much, where, and for whom goods and services should be produced
      3. ​Rationers
        1. ​high prices encourage economizing of relatively scarce resources and goods; low prices encourage more use of relatively abundant resources and goods
  4. ​​​Market Equilibrium- Demand and Supply
    1. ​Trial and Error
      1. ​Sellers initiate a price only to discover that a surplus or glut occurs and raise/lower it until equilibrium is achieved
    2. ​Characteristics of Equilibrium
      1. ​There is no tendency for change
      2. ​The amounts demanded equal the amounts supplied
      3. There is no surplus or shortage
    3. ​Demand and Amounts Demanded
      1. ​Amounts demanded
        1. ​refers to the amounts consumer are willing to buy of a particular good or service at varying prices of that good or service
        2. changes in it refer to changes along a demand curve as a result of a price change
      2. ​Demand
        1. ​changes in demand occur when determinants other than price change
    4. ​​Normal Goods
      1. ​As consumer income increases, demand for the normal goods increases
    5. ​​​Inferior Goods
      1. ​Consumption decreases as income increases
    6. ​Supply and Amounts Supplied
      1. ​Changes in amounts supplied
        1. ​result from a change in price
      2. ​Changes in supply result from changes in
        1. ​the number of sellers (providers, suppliers)
        2. costs of resources or production
        3. prices of substitute goods
        4. price expectations
        5. technology
        6. taxes/subsidies
    7. ​​Government Induced Changes
      1. ​Price ceiling
        1. ​prohibits prices to rise above a certain level
        2. decreases supply
        3. established under the equilibrium price
      2. ​Price floor
        1. established above the equilibrium or market price
        2. causes a surplus to develop

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How to cite this note (MLA)

Aboukhadijeh, Feross. "Chapter 4: The Basics of Supply and Demand" StudyNotes.org. WebTorrent, LLC., 12 Oct. 2013. Web. 06 Nov. 2026. <https://www.apstudynotes.org/microeconomics/outlines/chapter-4-the-basics-of-supply-and/>.

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