❮ 55
Demand, Supply, Market
Equilibrium, and Welfare Analysis
IN THIS CHAPTER:
Summary: A thorough understanding of the way in which the market system
determines price and quantity pays dividends both in microeconomics and
macroeconomics. In the absence of government intervention and/or exter-
nalities, the competitive market also provides the most efficient outcome for
society.Key Ideas
✪ Demand
✪ Supply
✪ Equilibrium
✪ Consumer and Producer Surplus6.1 Demand
Main Topics: Law of Demand, Income and Substitution Effects, The Demand Curves, Quantity
Demanded versus Demand Determinants of Demand
For many years now, you have understood the concept of demand. On the surface, the con-
cept is rather simple: people tend to purchase fewer items when the price is high than they
do when the price is low. This is such an intuitively appealing concept that your typical
consumer cares little about the rationale and still manages to live a happy life. As someone
knee-deep in reviewing to take the AP Macroeconomics exam, you need to go “behindKEY IDEA6
CHAPTER