1) The law of demand states that, other things equal, as the price of a good decreases, the quantity of demand increases (and vice versa). The law of supply states that, other things equal, as the price of a good decreases, the quantity supplied decreases (and vice versa). The phrase "other things equal" implies a market in equilibrium. Other things, like elasticity, interest rates, unemployment, etc. add friction to market equilibrium and affect the laws of supply and demand.

2) a. A movement along the demand curve occurs when the price changes and the quantity demanded changes to the corresponding point on the curve. A shift in the demand curve occurs when the price stays the same but the quantity demanded changes. An example of movement along the demand curve is when gas gets more expensive, people start buying less gas. An example of a shift in the demand curve is when people have more income they can afford to buy more gas or other items.

b. A movement along the supply curve occurs when the price changes and the quantity supplied changes to the corresponding point on the curve. A shift in the supply curve occurs when the price stays the same but the quantity supplied changes. An example of movement along the supply curve is when gas gets more expensive, more gas starts being produced. An example of a shift in the supply curve is when inputs like gas or labor get more expensive and they have to cut back on the amount supplied.

3) a. Factors that cause demand curve to shift:

Income: if someone gets a raise, they can buy more goods at the same price.

Trends: if something goes out of style, people buy less of it at the same price.

Price of substitutes: if the price of substitutes goes down, people will buy less of the other product at the same price.

Expectations: if people expect the price of a good to rise, they will buy more of that good at the same price.

b. Factors that cause supply curve to shift:

Input prices: if raw material get more expensive, firms will decrease supply

Number of sellers: if there are new entrants into the market. A firm will decrease its supply.

Technology: if technology increase productivity and profitability, a firm will increase its supply.

Expectations: If firms expect prices to increase, in the future they will decrease supply in the present.

4) a. Normal goods respond to positive income elasticity while inferior goods respond to negative income elasticity. Demand for a normal good will increase when income increase. An example would be expensive chocolate or organic chicken. Demand for an inferior good decreases when income increases. An example would be instant noodles or boxed macaroni and cheese.

b. Substitute goods have an independent relationship while complementary goods have an interdependent relationship. If the price of a good increases, the demand for its substitute decreases. An example would be the demand for Burger King increasing if McDonalds raised its prices or the demand for taxis if the subway raised its prices. If the price of a good increases, the demand for its complementary good decreases. An example would be the demand for video games decreasing if gaming systems raised their prices or the demand for cars if gas got more expensive.

5) If there was an increase in income, the demand for goods and services would increase overall.

6) If a market is in equilibrium, the quantity demanded is equal to the quantity supplied. If there is a surplus, the quantity supplied is greater than the quantity demanded. This happens when the market price is above equilibrium price. If there is a shortage, the quantity supplied is less than the quantity demanded. This happens when the market price is below the equilibrium price.