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Equilibrium can change when demand or supply change because of the factors mentioned earlier:
You may remember that demand can increase (moving the demand curve to the right) if

When demand increases for one of these reasons, it will move the equilibrium, and thus increase both the price and the quantity traded of the good:
increase demand The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
As the demand curve moves (to the purple curve), the equilibrium price increases to P2 and the quantity (bought and sold) increases to Q2. Buyers buy more of the good, but must pay a higher price to get it.

Demand can decrease (moving the demand curve to the left) if

When demand decreases for one of these reasons, it will move the equilibrium, and thus decrease both the price and the quantity traded of the good:
decrease demand The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
As the demand curve moves (to the purple curve), the equilibrium price decreases to P2 and the quantity (bought and sold) decreases to Q2. Buyers buy less of the good, and pay a lower price to get it.

You may remember that supply can increase (moving the supply curve to the right) if

When supply increases for one of these reasons, it will move the equilibrium, and thus decrease the price and increase the quantity traded of the good:
increase supply The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
As the supply curve moves (to the purple curve), the equilibrium price decreases to P2 and the quantity (bought and sold) increases to Q2. Sellers sell more of the good, but get paid a lower price to sell it.

Supply can decrease (moving the supply curve to the left) if

When supply decreases for one of these reasons, it will move the equilibrium, and thus increase the price and decrease the quantity traded of the good:
decrease supply The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
As the supply curve moves (to the purple curve), the equilibrium price increases to P2 and the quantity (bought and sold) decreases to Q2. Sellers sell less of the good, but get paid a higher price to sell it.

A Summary...
Event Effect on Price Effect on Quantity
bought and sold
Demand Increases Price Increases Quantity Increases
Demand Decreases Price Decreases Quantity Decreases
Supply Increases Price Decreases Quantity Increases
Supply Decreases Price Increases Quantity Decreases

What if more than one thing is changing?

If demand and supply are both changing, the total effect is the addition of the effects of each change. For example, if demand is increasing at the same time as supply is increasing, the result will be an increase in quantity, but we can't be sure about the overall effect on price:

Event Effect on Price Effect on Quantity
bought and sold
Demand Increases Price Increases Quantity Increases
Supply Increases Price Decreases Quantity Increases
Demand Increases
while
Supply Increases
Price Decreases or
Price Increases or
Price stays the same
(depends on which changes the most)
Quantity Increases

To see this graphically:

increase supply and demand, price falls The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
If the supply curve moves to the right more than the demand curve moves to the right, the equilibrium price decreases to P2 and the quantity (bought and sold) increases to Q2.
increase supply and demand, price rises The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
If the supply curve moves to the right less than the demand curve moves to the right, the equilibrium price increases to P2 and the quantity (bought and sold) increases to Q2.
increase supply and demand, price stays the same The original equilibrium (with the green supply and red demand) occurs at the price of P1 and quantity (bought and sold) of Q1.
If the supply curve moves to the right by as much as the demand curve moves to the right, the equilibrium price remains at P1 and the quantity (bought and sold) increases to Q2.

The other possibilites...
Event Effect on Price Effect on Quantity
bought and sold
Demand Increases
while
Supply Increases
Price Decreases or
Price Increases or
Price stays the same
(depends on which changes the most)
Quantity Increases
Demand Increases
while
Supply Decreases
Price Increases Quantity Decreases or
Quantity Increases or
Quantity stays the same
(depends on which changes the most)
Demand Decreases
while
Supply Increases
Price Decreases Quantity Decreases or
Quantity Increases or
Quantity stays the same
(depends on which changes the most)
Demand Decreases
while
Supply Decreases
Price Decreases or
Price Increases or
Price stays the same
(depends on which changes the most)
Quantity Decreases

Copyright 2006 by Ray Bromley. For economics information, and other information about Ray Bromley, visit www.raybromley.com. Permission to copy for educational use is granted, provided this notice is retained. All other rights reserved.
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