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MARKET ADJUSTMENTS Changes To Demand And Supply
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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.
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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.
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AN INCREASE IN DEMAND AS A TABLE
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AN INCREASE IN DEMAND AS A GRAPH
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AN INCREASE IN DEMAND IN EQUATION FORM Qd = 800 - 100(Price) and Qs = 100(Price) Set: Qd = Qs Substitute: 800 - 100(Price) = 100(Price) Simplify: 800 = 200(Price) Solve: $4 = Price Qd = 800 - 100(Price)Qs = 100(Price) Qd = 800 - 100(4)Qs = 100(4) Qd = 400 Qs = 400
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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.
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A DECREASE IN DEMAND AS A TABLE
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A DECREASE IN DEMAND AS A GRAPH
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A DECREASE IN DEMAND IN EQUATION FORM Qd = 400 - 100(Price) and Qs = 100(Price) Set: Qd = Qs Substitute: 400 - 100(Price) = 100(Price) Simplify: 400 = 200(Price) Solve: $2 = Price Qd = 400 - 100(Price)Qs = 100(Price) Qd = 400 - 100(2)Qs = 100(2) Qd = 200 Qs = 200
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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.
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AN INCREASE IN SUPPLY AS A TABLE
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AN INCREASE IN SUPPLY AS A GRAPH
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AN INCREASE IN SUPPLY IN EQUATION FORM Qd = 600 - 100(Price) and Qs = 100(Price) +200 Set: Qd = Qs Substitute: 600-100(Price) = 100(Price)+200 Simplify: 400 = 200(Price) Solve: $2 = Price Qd = 600 - 100(Price) Qs = 100(Price)+200 Qd = 600 - 100(2) Qs = 100(2) + 200 Qd = 400 Qs = 400
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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.
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A DECREASE IN SUPPLY AS A TABLE
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A DECREASE IN SUPPLY AS A GRAPH
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A DECREASE IN SUPPLY IN EQUATION FORM Qd = 600 - 100(Price) and Qs = 100(Price) - 200 Set: Qd = Qs Substitute: 600-100(Price) = 100(Price)-200 Simplify: 800 = 200(Price) Solve: $4 = Price Qd = 600 - 100(Price) Qs = 100(Price)-200 Qd = 600 - 100(4) Qs = 100(4) - 200 Qd = 200 Qs = 200
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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.
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