Section 1

The Market Clearing Price is the price at which the number of units that people are willing and able to buy is equal to the number of units that people are willing and able to sell If y = axb, where a and b are constants, dy/dx = bax(b-1)

Section 2

The Law of Demand is: The principle that there is an inverse relationship between the price of a good and the quantity demanded. Deamand shifters= Advertising and consumer tastes, Number of buyers, Income, Income elasticity of demand, Prices of related goods Income Elasticity of Demand is: The responsiveness of the demand for a good to changes in income. Normal good: Income rises demand rises; income falls demand falls} Inferior goods: Income rises demand falls, Income falls demand rises Cross-Price Elasticity of Demand is: The responsiveness of the demand for a good to changes in the price of a related good. Substitutes and price of y increases= demand for x increases; Price of y falls= demand for x falls} Complements and price of y increases= demand for x decreases; Price of y falls = price of x increases Inverse demand = put the price on the left side and everything else on right Graphing a demand curve 1st - Fill in numerical values for all variables except the quantity and the price. 2nd- Find the inverse demand function (put the price on the left side and everything else on the right) 3rd- set price equal to 0 this will give you x intercept 4th- Use the inverse demand function to find the y-intercept; make sure to simplify then set qdx equal to 0 to find y intercept 5th graph it p on vertical x on horizontal The Law of Supply is: The principle that there is a positive relationship between the price of a good and the quantity supplied. Supply shifters= number of firms, Input prices, technology Graphing a supply curve 1st- Fill in numerical values for all variables except the quantity and the price. 2nd- . Find the inverse supply function (price on left everything else on right) 3rd- Plug in 0 for the price and it will give you x 4th- Plug in any values into the inverse demand function to find another point Market clearing price and quantity At equilibrium Qd=Qs If you have a demand and supply function, simply set them equal to each other and solve for price Comparative Statics: Shifting a demand or supply curve, and comparing the new equilibrium with the old one.