Download Changes in Price

Changes in Market Equilibrium
Lecture Notes
Objectives:
 Students will identify the determinants that create changes in
price
 Students will explain how a market reacts to a fall in supply
by moving to a new equilibrium
 Students will explain how a market reacts to shifts in demand
by moving to a new equilibrium
Changes in Price
 Factors that affect changes in price
o Advances in technology
o Changes in tastes and preferences of consumers
o Changes in prices of raw materials and labor
o New government taxes and subsidies
 Understanding a shift in supply
o Intersection of original supply and demand is equilibrium
where the supply and demand is equal
o When the supply curve shifts, the equilibrium changes.
Point C is the new equilibrium
o Point B represents disequilibrium which can result in
 Excess supply (surplus)
 Excess demand (shortage)
o Finding a new equilibrium
 Market will adjust itself to find a new equilibrium
 Quantity demanded greater than quantity
supplied – price will go up
 Quantity demanded less than quantity
supplied – price will go down
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 A fall in supply – supply curve shifts to the left
o Suppliers raise their prices
o Quantity demanded falls
o Results in a new equilibrium point that is above and to
the left of original equilibrium point along the demand
curve
 Shifts in demand-increase
o Problem of excess demand – shortage
o Return to equilibrium
 Prices rise
 Shift in demand – decrease
o Prices decrease
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