(1) Shortage P QD = 15 – 2 P S QS = -25 + 8 P QS = -25 + 8 (3.5) = 3

(2) Surplus P QD = 15 – 2 P S QS = -25 + 8 P QD= 15 - 2 (5) = 5

d. Market changes Process: Start with initial equilibrium Does the event affect supply or demand? Which direction is that effect in? (Increase or decrease) Show graphically Start explicitly what happens to P and Q

(1) Changes in demand

(a) Increase in demand P S Ex. – HP reduces price of printers D0 -> D1 => increase in demand P1 D => P Q P0 D0 D1 Q0 Q1 QD

(b) Decrease in demand P S Ex. – Decline in population in Detroit D0 -> D2 => decrease in demand P0 P2 D => P Q D2 D0 Q2 Q0 QD

(2) Changes in supply

(a) Increase in supply P S0 S1 Ex. - Uber S0 -> S1 => increase in supply P0 P1 S => P Q D Q0 Q1 QD

(b) Decrease in supply P S2 S0 Ex. – Increase in wages S0 -> S2 => decrease in supply P2 P0 S => P Q D Q2 Q0 QD

(3) Changes in demand and supply

Ex. – Boom in housing market P S1 S0 P1 Ex. – Boom in housing market P0 EXC => D => P Q EXP => S => P Q => P Q uncertain D0 D1 Q0 QD

Ex. – Crash in the stock market P S0 S1 Ex. – Crash in the stock market P0 EXC => D => P Q EXP => S => P Q P1 => P Q uncertain D0 D1 Q0 QD

P S0 S1 P0 D => P Q S => P Q D1 => Q P uncertain D0 Q0 Q1 QD

P S1 S0 P0 D => P Q S => P Q => Q P uncertain D0 D1 Q1 Q0 QD