MARKET ADJUSTMENTS Changes To Demand And Supply

MARKET ADJUSTMENTS l The price of a product remains at the equilibrium point until something changes the demand and/or supply in a market. l Changes in market demand or market supply are not unusual, in fact, most markets have demands and supplies that drift around a bit.

MARKET ADJUSTMENTS l Mostly, these change are ignored. However, large changes in demand or supply cannot be ignore. l It’s possible therefore, to examine the impact on equilibrium price and quantity of an increase or decrease in demand, and an increase or decrease in supply.

AN INCREASE IN DEMAND AS A TABLE

AN INCREASE IN DEMAND AS A GRAPH

AN INCREASE IN DEMAND IN EQUATION FORM Qd = (Price) and Qs = 100(Price) Set: Qd = Qs Substitute: (Price) = 100(Price) Simplify: 800 = 200(Price) Solve: $4 = Price Qd = (Price)Qs = 100(Price) Qd = (4)Qs = 100(4) Qd = 400 Qs = 400

MARKET ADJUSTMENT TO AN INCREASE IN DEMAND l When demand increases a larger quantity is demanded at every price. l The result is an increase in price to $4.00 and an increase in quantity to 400.

A DECREASE IN DEMAND AS A TABLE

A DECREASE IN DEMAND AS A GRAPH

A DECREASE IN DEMAND IN EQUATION FORM Qd = (Price) and Qs = 100(Price) Set: Qd = Qs Substitute: (Price) = 100(Price) Simplify: 400 = 200(Price) Solve: $2 = Price Qd = (Price)Qs = 100(Price) Qd = (2)Qs = 100(2) Qd = 200 Qs = 200

MARKET ADJUSTMENT TO A DECREASE IN DEMAND l When demand decreases a smaller quantity is demanded at every price. l The result is an decrease in price to $2.00 and an decrease in quantity to 200.

AN INCREASE IN SUPPLY AS A TABLE

AN INCREASE IN SUPPLY AS A GRAPH

AN INCREASE IN SUPPLY IN EQUATION FORM Qd = (Price) and Qs = 100(Price) +200 Set: Qd = Qs Substitute: (Price) = 100(Price)+200 Simplify: 400 = 200(Price) Solve: $2 = Price Qd = (Price) Qs = 100(Price)+200 Qd = (2) Qs = 100(2) Qd = 400 Qs = 400

MARKET ADJUSTMENT TO AN INCREASE IN SUPPLY l When supply increases a larger quantity is supplied at every price. l The result is a decrease in price to $2.00 and an increase in quantity to 400.

A DECREASE IN SUPPLY AS A TABLE

A DECREASE IN SUPPLY AS A GRAPH

A DECREASE IN SUPPLY IN EQUATION FORM Qd = (Price) and Qs = 100(Price) Set: Qd = Qs Substitute: (Price) = 100(Price)-200 Simplify: 800 = 200(Price) Solve: $4 = Price Qd = (Price) Qs = 100(Price)-200 Qd = (4) Qs = 100(4) Qd = 200 Qs = 200

MARKET ADJUSTMENT TO A DECREASE IN SUPPLY l When supply decreases a smaller quantity is supplied at every price. l The result is an increase in price to $4.00 and a decrease in quantity to 200.