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Substitution Effect
Occurs because a good becomes relatively more expensive
when price rises
Income Effect
When price goes up, less expendable income
Forces behind the Demand Curve
Average Income
Size of the Market
Prices and availability of related goods
Tastes or preferences
Special influences
Shifts in Demand
Q
Forces behind the Supply Curve
Q
Market Equilibrium
P
S
surplus
P
QD QS Q
Market Equilibrium
P
S
P
shortage
D
QS QD Q
Market Equilibrium
P
S
P* E
Q* Q
Market Equilibrium
P
S
P** E
P* E
Q* Q** Q
Market Equilibrium
P
S
P* E
P** E
D
D
Q** Q* Q
Market Equilibrium
P
S S
P* E
P** E
Q* Q** Q
Market Equilibrium
P
S S
P** E
P* E
Q** Q* Q