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How do changes in supply or demand affect equilibrium prices and quantities exchanged?
Quantity Exchanged n It’s simple. – An increase in supply or demand causes an increase in quantity exchanged. – A decrease in supply or demand causes a decrease in quantity exchanged.
Equilibrium Price n It’s simple. – An increase in supply or a decrease in demand puts downward pressure on prices. – A decrease in supply or an increase in demand puts upward pressure on prices.
Changes in Supply or Demand Increase in Supply Decrease in Supply Increase in Demand Decrease in Demand Impact on Equilibrium Price Down Impact on Quantity Exchanged Up Up Down
What has caused these prices to change? n n n n Computer prices fall. It is September and peach, berry, and other fruit prices rise. It is the middle of salmon season and prices are rising. The price of a major league baseball star’s rookie card is falling. The price of artichokes rises. The price of yo-yo’s falls. The price of ancient statues falls.
Market Analysis Change in Supply (WAGTIP) Change in Demand (TIPSE) Increase Equilibrium Price Quantity Supplied _____ Decrease _____ Down _____ Up Up _________ Decrease _________ Up Increase Quantity Exchanged Up Down Quantity Demanded Down _____
How do changes in demand affect quantity supplied? n A change in quantity supplied occurs in the short -run as suppliers respond to a change in the price of the product with no change in WAGTIPS. If demand increases, price will rise, and suppliers will attempt to squeeze more out of their resources with no change in WAGTIPS. n If demand falls, price will fall, causing suppliers to supply less, with no change in WAGTIPS. n Change in demand causes a change in price which causes a change in quantity supplied, no change in WAGTIPS. n
How do changes in supply affect quantity demanded? A change in quantity demanded occurs as buyers respond to a change in the price of the product with no change in TIPSE. If supply increases, price will fall and buyers will buy more with no change in TIPSE. n If supply decreases, price will rise and buyers will buy less with no change in TIPSE. n Change in supply causes a change in price which causes a change in quantity demanded with no change in TIPSE. n
Questions n Demand or supply? n Increase or decrease? n Equilibrium price? n Quantity supplied? n Quantity demanded? n Quantity exchanged?