Changes in Equilibrium!

Equilibrium Review Equilibrium is where quantity supplied and quantity demanded are equal. Graphically, equilibrium is the point where the supply and demand curves cross. It tells us: a. The Equilibrium Price: - The price for that product that we will see the stores. b. The Equilibrium Quantity: - The amount suppliers will make and the amount that demanders will buy (They will be equal to each other).

P Q S D p q Market Equilibrium

Changes in Equilibrium You know that changes in the determinants of demand or changes in the determinants of supply will cause the demand or supply curves to move. If equilibrium is the point where the supply and demand curves cross, then if either of the curves move, equilibrium will move, because the curves will cross at a different location.

P Q S D1D1 D2D2 A change in Equilibrium Equilibrium New Equilibrium There is always only 1 equilibrium. Once we have a new equilibrium, the old equilibrium is gone.

Equilibrium Since equilibrium tells us the equilibrium price and quantity, when equilibrium moves, equilibrium price and quantity change. – The product will become more or less expensive – The amount that suppliers make and demanders buy will increase or decrease.

P Q S D1D1 p1p1 q1q1 D2D2 p2p2 q 2 An Increase in Demand Changing Equilibrium

P Q S D2D2 p2p2 q2q2 D1D1 p1p1 q 1 A Decrease in Demand Changing Equilibrium

P Q S1S1 D p1p1 q1q1 S2S2 p2p2 q2q2 An Increase in Supply Changing Equilibrium

P Q S1S1 D p1p1 q1q1 S2S2 p2p2 q2q2 A decrease in Supply Changing Equilibrium

Summarizing the Changes in equilibrium Don’t waste your time memorizing these. Instead, use the model. 1. Find equilibrium on the graph 2. Use it to find Price and quantity 3. Move a curve. 4. Find the new equilibrium 5. Use it to find the new price and quantity 6. See which ones went up or down.

Summarizing the Changes in equilibrium If demand increases then price… increases and quantity… increases If demand decreases then price… decreases and quantity… decreases

Summarizing the Changes in equilibrium If supply increases then price… decreases and quantity… increases If supply decreases then price… increases and quantity… decreases

Fascinating!