Equilibrium Equilibrium is the point of intersection of Demand and Supply Curves. Equilibrium can shift if :- Demand Curve Shifts. Supply Curve Shifts. Both Shift. This gives rise to eight possibilities

S D P E Example No D` E` Q

S D P E Example No S` E` Q

S D P E Example No. 3 S` D` 8000 E` Q

S D P PePe QdQd Example No. 4  D` E1E1 EoEo Q

S D P Example No. 5 S` QdQd PePe EoEo E1E1 Q

S D Q P Example No. 6 QdQd PePe S` D` ? E1E1 EoEo

S D Q P Example No. 7 S` D` QdQd PePe ? E1E1 EoEo

S D Q P Example No. 8 S` D` PePe QdQd ? EoEo E1E1

Summarized D , S ~,P  Q  D ~, S ,P  Q  D , S ,P ?Q  D , S ~,P  Q  D ~, S ,P  Q  D , S ,P  Q ? D , S ,P  Q ? D , S ,P ?Q  D , S ~,P  Q  D ~, S ,P  Q  D , S ,P ?Q  D , S ~,P  Q  D ~, S ,P  Q  D , S ,P  Q ? D , S ,P  Q ? D , S ,P ?Q 

Points to note When D shifts you move along the supply curve When S shifts you move along the demand curve When both D & S shift you can think of first moving along demand curve and then moving along supply curve or vice versa

The market for butter Question : What will happen to the equilibrium price and quantity of butter in each of the following cases? a.A rise in the price of the margarine. D , S  b.A rise in the demand for milk. S  ; D  ( if milk is a substitute ) c.A rise in the price of bread. D  d.A rise in the demand of bread. D  e.An expected rise in the price of butter in near future. S  D  f.A Tax on butter production. S  g.An invention of a new, but expensive, process of removing all cholesterol from butter, plus the passing of law which states that all producers must use this process. D  S 

IDENTIFICATION PROBLEM (Identify the demand for Tennis Balls ) D P S1S1 a b S2S2 Figure D1D1 a b S1S1 S2S2 D2D2 Figure If demand curve has not shifted, then the evidence allow us to identify its position. It is difficult to identify just what is causing the change in price and quantity P Q Q

Rationing & supply shocks ( alteration of equilibrium price by the Govt ) Through Tax : Tax ( to be paid by the producer ) will the Supply Price, Supply Curve, P & Through Subsidy : Subsidy ( to the producer ) will the Supply Price, Supply Curve, P & QeQe QeQe

Government intervention : ceiling & floor S D P EPePe QeQe PfPf PcPc Q2Q2 Q4Q4 Shortage Q4 – Q2 Surplus Q3 – Q1 Price Ceiling Price Floor Q

SoSo D P QoQo PoPo Tax P1P1 S1S1 Q1Q1 Liters of Petrol Imposition of tax by the government EoEo E1E1 Tax per unit

1.Draw the diagram showing the market conditions before any change takes place. 2.Work out if the change ( The increase in Tax) causes a shift in Supply or demand curve. The tax will effect the supply curve- essentially it increases the cost of production. 3.Work out the directions of the shift. 4.Draw the shifted Curve on the diagram. 5.Indicate the new market price and quantity on the diagram. Steps followed CONCLUSION: The market Price will increase and the quantity traded ( bought and sold) will decrease.

S1S1 D P Q1Q1 P1P1 Subsidy PoPo SoSo QoQo C. N. G Payment of subsidy by the government E1E1 EoEo Subsidy per unit