Download Changes in Quantity Demanded and Quantity Supplied

Changes in Quantity Demanded
and Quantity Supplied
By now, you know
how to shift either
the Demand Curve or
the Supply Curve….
…which causes the
Equilibrium Price
and the Equilibrium
Quantity in the
market to change
But there is ONE
more important thing
that occurs when one
of the curves shifts
When one of the curves shifts, it impacts the
other curve in a way we call “Changing the
Quantity Supplied” or “Changing the Quantity
Demanded”
Let’s work our way through an example:
In the Market for Chocolate
Candy, what happens to
Equilibrium Price and Quantity
if Halloween is 4 days away?
S
Demand will Increase, causing
Equilibrium P and Q to increase
P1
P
D1
D
Q
We have shifted the
Demand curve,
causing a
Change in Demand
Q1
But what do we say is happening to the
Supply Curve?
When the Demand Curve
shifts, it means that ALL of
the buyers have changed
their preferences, so we’ve
drawn a new curve to show
this change
We call this a Change in
Demand
But the Supply Curve
hasn’t moved, so we can’t
say that there has been a
Change in Supply
S
P1
P
D1
D
Q
Q1
Instead, we say that there has been a CHANGE IN
QUANTITY SUPPLIED
•The change in Equilibrium Price caused by the Change in Demand
causes SOME of the sellers to react to the price change
•We move from one point on the Supply Curve to another point on
the same Supply Curve
If we were to
take away the
Demand
Curves on the
graph, this is
what we’d be
left with…
Now it’s
easier to see
that we
MOVE ALONG
the supply
curve from
one point to
another point
when the
price of the
good changes
S
P1
P
D1
D
Q Q1
This also illustrates the
LAW OF SUPPLY
•Price and Quantity Supplied are DIRECTLY
related
•When Price of the good increases, the Quantity
Supplied also increases
•When Price of the good decreases, the
Quantity Supplied also decreases
Let’s look at a Change in Supply…
S1
S
What happens to the
Equilibrium Price and Quantity
in the Market for Bananas if
the US Government limits
imported bananas?
P1
P
D
Q1
There is a CHANGE IN
SUPPLY
Supply will decrease, causing
Equilibrium Price to rise and
Equilibrium Quantity to
decrease
Q
The Demand Curve doesn’t shift, so there can’t be a CHANGE IN
DEMAND….instead we have a CHANGE IN QUANTITY DEMANDED
•The Equilibrium Price increase causes the buyers to react to the price
change
•SOME buyers change their preferences due to the new price
•There is a move from one point on the Demand Curve to another point on
the same Demand Curve
If we were to take away the
Supply Curves on the graph,
this is what we’d be left with…
S1
S
P1
P
Once again, we just MOVE
ALONG the demand curve from
one point to another point when
the price of the good changes
D
Q1
Q
This illustrates the LAW OF DEMAND
•Price and Quantity Demanded are INVERSELY related
•When Price of the good increases, the Quantity Demanded will
decrease
•When Price of the good decreases, the Quantity Demanded will
increase
So, when one curve shifts, it causes the
price of the good to change AND a
movement from one point to another point
on the other curve
A CHANGE IN
DEMAND
will trigger a price
change that will
cause a
CHANGE IN
QUANTITY SUPPLIED
A CHANGE IN
SUPPLY
will trigger a price
change that will
cause a
CHANGE IN
QUANTITY DEMANDED