Changes in Equilibrium

Lesson 2.7

Changes in Supply and Demand

• Law of Demand and Law of Supply describe what happens when prices change

• When price changes, what is really happening (with regards to the Supply and Demand Curves)?

What Happens when the Demand Curve Shifts

• Increasing Demand1. Demand Shifts Right2. Prices Increases3. Quantity Increases4. New Equilibrium Established

• Decreasing Demand1. Demand Shifts Left2. Prices Decrease3. Quantity Decreases4. New Equilibrium Established

What Happens when the Supply Curve Shifts

• Increasing Supply– Supply Shifts Right– Quantity Increases (surplus)– Price Decreases– New Equilibrium Established

• Decreasing Supply– Supply Shifts Left– Quantity decreases (shortage)– Prices Increases– New Equilibrium Established

Simultaneous Shifts in Supply and Demand Curves

• Equilibrium is rarely stable, with both supply and demand are changing all the time.– The final result is dependant on which change is more

significant– Demand Increase, Supply Increase

• Price is variable, quantity increases

– Demand Increase, Supply Decrease• Price rises, quantity is variable

– Demand Decrease, Supply Increase• Price falls, quantity is variable

– Demand Decrease, Supply Decrease• Price in variable, quantity falls