How will each of the following changes in demand and/or supply affect equilibrium price and equi

How will each of the following changes in demand and/or...

Key Concepts

Supply and Demand Curves

These curves graphically represent the relationship between the price of a good and the quantity supplied or demanded. The demand curve typically slopes downward, indicating that higher prices lead to lower quantity demanded, while the supply curve usually slopes upward, showing that higher prices incentivize producers to supply more. Their interaction determines market outcomes.

Supply and Demand Diagrams

These diagrams are visual tools used to illustrate how shifts in the supply and/or demand curves affect the equilibrium price and quantity. They enable one to clearly see the effects of changes such as increases or decreases in supply or demand, and are particularly useful in comparative statics analysis for predicting market outcomes.

Comparative Statics Analysis

This is the method used to analyze the change in equilibrium outcomes (price and quantity) resulting from shifts in the supply and/or demand curves. It involves comparing the initial and new equilibrium states to assess whether price and quantity will rise, fall, or remain unchanged based on the direction of the shifts and, in some cases, on the relative magnitude of the changes.

Competitive Market and Equilibrium

This concept refers to the market structure where many buyers and sellers interact, and no single entity can control the market price. In such markets, the equilibrium price is determined by the intersection of the supply and demand curves, where the amount supplied equals the amount demanded. Changes in either curve shift this intersection point, thereby affecting equilibrium price and quantity.

Shifts in Supply

A shift in the supply curve reflects a change in the underlying conditions affecting producers, such as production costs or technology, independent of the current price. A leftward shift (decrease in supply) generally increases equilibrium price and decreases equilibrium quantity, while a rightward shift (increase in supply) typically lowers equilibrium price and increases equilibrium quantity.

Shifts in Demand

A shift in the demand curve indicates a change in factors influencing consumer preferences or incomes, among other variables, independent of the good's current price. An increase in demand (rightward shift) generally leads to a higher equilibrium price and a greater equilibrium quantity, whereas a decrease in demand (leftward shift) usually results in a lower equilibrium price and a reduced equilibrium quantity.

Transcript

00:01 All right.

00:01 Today we're going to be looking at how demand and supply curves affects the equilibrium price and quantity in a competitive market.

00:11 So these are less application questions more just so you can grasp the knowledge on how basic supply and demand curve shifts affect equilibrium price or quantity.

00:24 So there's around eight, nine questions here.

00:26 We're going to go one by one.

00:28 So starting off, supply decreases.

00:31 And demand is constant.

00:33 So the answer to each of these questions, i see this in most of my videos, it's always important to draw the supply demand curve just to make sure that all the thinking is correct and you can see exactly what you're thinking, avoid mistakes.

00:50 So supply decreases and demand is constant.

00:54 So when supply decreases, it goes leftward, right? that's one here.

00:59 And we see that this was equilibrium one.

01:02 Right and now this is equilibrium.

01:08 Sorry about that.

01:09 So equilibrium one, this is where quantity was here, 21, and price one.

01:16 Now when supply decreased, right, made a new equilibrium where price went up, the quantity went lower.

01:24 Right? so when supply decreases and demand is constant, we see an increase in price and a decrease in all right, second question.

01:41 Demand decreases and supply is constant.

01:43 All right, so this time we keep supply constant and we shift demand leftwards here.

01:52 So let's look at the equilibrium prices now.

01:56 Before we were over here, right? on a price, this was the old quantity here, q1 and b1.

02:07 And now with this shift we see quantity going downwards, right? and price also going downwards.

02:19 So in conclusion, price goes lower and quantity goes lower when demand decreases and supply is constant.

02:27 Cool.

02:28 So you guys probably get how where i'm getting at over here.

02:31 So i'm going to go through these next couple ones really quickly.

02:35 So supply increases and demand is constant.

02:38 We're going to make a supply demand curve again.

02:42 Price, quantity, and supply increases.

02:47 We get supply going this way.

02:50 This is the past equilibrium here.

02:54 Now with new shift in supply, we see quantity rising over here and price declining over here.

03:04 So we can go ahead and say price decreases and quantity.

03:08 Increases when supply increases and demand is constant.

03:16 Question d, demand increases and supply increases.

03:20 All right.

03:21 So you got our function area, supply demand.

03:27 All right, we see both these curves increase.

03:29 So let's go ahead and draw that out, s1 and demand a1.

03:34 Right, now this question is a little bit more tricky because, so let's try the equilibrium here, q1 and q1.

03:42 One.

03:43 Now supply and demand both increased, right? so we can see, we can see that quantity obviously increases here, right? q2, we see an increase in quantity.

03:56 But price we don't know yet, right? like, you can make out that it's higher or lower, but it all depends on the magnitude of the shift, right? so we are actually uncertain whether or not price increases or decreases here.

04:09 So we can conclude here that quantity, for sure increases, right? you can see that obviously.

04:15 Price here is unknown, right? and that's the final answer there.

04:21 So when supply and demand both increase, quantity rises and price is unknown.

04:28 And like we could figure out price by getting into the nitty -gritty of how by how much it shifted, looking at determinants of the shift, and so on so...

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