Lesson Objectives: By the end of this lesson you will be able to: *Explain Why a free market naturally tends to move toward equilibrium. *Analyze how a market reacts to an increase or decrease in supply. *Analyze how a market reacts to an increase or decrease in demand.

Moving Toward Equilibrium Economists say that a market will tend to move toward equilibrium, which means that the price and quantity will gradually move toward their equilibrium levels. There are two factors that can push a market into equilibrium: 1.A shift in the entire demand curve. 2.A shift in the entire supply curve.

Example of a product that has experienced a market change: The Digital Camera Digital cameras were first introduced into the consumer market In These early cameras were extremely expensive and the picture quality was not very high. Over time, technology improved and by the year 2000, the Picture quality was better and the cameras were cheaper because advances in technology lowered the cost of manufacturing. Finding A New Equilibrium Digital cameras evolved from an expensive luxury good to a mid priced good when new computer technology reduced the cost of Production. The lower price of manufacturing made producers willing to supply a larger quantity of cameras. Changing Equilibrium As improved technology caused the price of digital cameras to fall, sales increased.

How does a market react to a shortage???? When supply & demand are balanced a market is at equilibrium. But a sudden change in supply or demand can result in a shortage. How does the market react? 1.Disequilibrium- The market is thrown out of balance. For example: More people need warm coats during a cold winter. 2.This may cause a decrease in supply which is called a Shortage. 3.People react to a shortage with panic. They line up at the stores to purchase the hard to find item. Stores react by raising the price of the hard to find item. 4.If the shortage continues other suppliers try to enter the market by making the product in demand. 5.In time, supply & demand will balance out and a new equilibrium will be created.