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PUTTING IT ALL TOGETHER: EQUILIBRIUM How Demand & Supply Interact to Determine Prices of Goods & Services WHAT HAPPENS WHEN DEMAND OR SUPPLY SHIFTS? IF DEMAND INCREASES… P Q P2 D2 Q2 IF DEMAND DECREASES… P2 D2 Q2 P Q IF SUPPLY INCREASES… P Q S2 P2 Q2 IF SUPPLY DECREASES… S2 P2 Q2 P Q THREE STEPS TO ANALYZING CHANGES IN EQUILIBRIUM ⦿ Does the event shift the supply (WIGNET), demand curve (INEPT), or neither? ⦿ Will the curve shift right ( ⦿ Draw ) or left ( )? & label the new curve on your graph ⦿ Locate the new equilibrium (price and qty) LET’S PRACTICE… NATION’S LARGEST SPAGHETTI PRODUCER CUTS PASTA PRICES Spaghetti Sauce P Q P2 D2 Q2 SUBZERO TEMPERATURES DESTROY MUCH OF FLORIDA’S CITRUS CROP Orange Juice P2 Q2 S2 P Q FARMER INVENTS NEW PICKING MACHINE – HARVESTS APPLES IN HALF THE TIME Red Delicious Apples S2 P Q P2 Q2 COLORADO SKI RESORTS ANNOUNCE 50% INCREASE IN LIFT TICKET PRICES Hotel Rooms @ Colorado Ski Resorts P2 D2 Q2 P Q