Shifting of Demand and Supply Curves (Part II)

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Transcript:

What happens when both demand and supply increase?
An increase in demand causes quantity to increase,
An increase in supply causes quantity to increase as well,
Overall, quantity increases.

What about price?
Price increases here,
Price decreases here,
Overall, hmm…
We don’t really know…

Suppose increase in demand is huge,
Demand shifts way to the right.
Increase in supply is small,
Supply shifts right just by a little.

Equilibrium quantity increases.
We already know this.
Equilibrium price increases.
Another way to think about this is,
Because the increase in demand is huge,
Price increase is huge.
The increase in supply is small,
Price decrease is small.
Add up these opposing effects,
Overall, there’s a small increase in price.

What happens when the increase in demand and supply is the same?
Demand shifts right.
Supply shifts right, in the same way…
Overall, quantity increases, that’s obvious.
No change in price!
Put a 0 here.
Another way to think about it is
Because demand and supply increase by the same magnitude,
Price increases,
Price decreases too, with the same magnitude.
Overall, it’s a wash.
So no change in price.

When demand increases a little,
Demand shifts to the right, just a little.
When increase in supply is huge,
Supply shifts way to the right.
Overall, quantity increases,
Again, that’s obvious.
Overall, price decreases.
A small increase in demand causes
A small increase in price.
A huge increase in supply results in
A huge decrease in price.
Add up these opposing effects,
A small drop in price.

Alright, cool.
Oh we still have a few more combinations here.
Holy crap!
I’ll show you all the combinations here
To make Economics easy for you.
Stay with me.

What happens when demand increases and supply decreases?
Since price increases for both curves,
Overall, price increases.
Quantity increases here and decreases here.
So we don’t really know what’s the overall change.

When increase in demand is huge,
Demand shifts way to the right.
When decrease in supply is small,
Supply shifts left, just a little
Price increases.
Quantity increases.

When demand increases and supply decreases equally,
Price increases,
No change in quantity.

When increase in demand is small,
Decrease in supply is huge,
Price increases,
Quantity decreases.

What happens when demand decreases and supply increases?
Overall, price decreases.
Quantity decreases here and increases here.
We don’t really know the overall change.

When decrease in demand is huge,
Increase in supply is small,
Price decreases,
Quantity decreases.

When demand decreases and supply increases equally,
Price decreases,
Quantity stays the same.

When decrease in demand is small,
Increase in supply is huge,
Price decreases,
Quantity increases.

What happens when demand and supply decrease?
Overall, quantity decreases.
Price decreases here and increases here.
We don’t really know the overall change.

When decrease in demand is huge,
Decrease in supply is small,
Quantity decreases,
Price decreases.

When demand and supply decrease equally,
Quantity decreases,
Price stays the same.

When decrease in demand is small,
Decrease in supply is huge,
Quantity decreases,
Price increases.

Here’s the summary.
Some of the price and quantity changes are indeterminate
Because it depends how far the curves shift.
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Next up: Marginal Cost and Marginal Benefit

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Why does market equilibrium change all the time? Why do prices and quantities change all the time?

Well, market conditions change and those cause demand and supply curves to shift, affecting price and quantity. To determine which curve shifts, we need to understand who is the party here concerned? Sellers or buyers? Which direction does the curve shift? How do price and quantity change?

For instance, when more people prefer healthy good, demand for healthy food such as sushi and sandwiches increase, increasing price and quantity. There are other factors affecting demand too. For instance, price of substitutes and complements; future expectation of prices and population.

The supply curve shifts too. When natural disaster hits, factors of production get destroyed. It gets more expensive to produce car, for example. Hence, supply of cars decrease, the supply curve shifts left, causing price to increase and quantity to decrease.

In general, when demand increases, the demand curve shifts right. Price and quantity increase.
When demand decreases, the demand curve shifts left. Price and quantity decrease.
When supply increases, the supply curve shifts right. Price decreases and quantity increases.
When supply decreases, the supply curve shifts left. Price increases and quantity decreases.