how do price changes affect equilibrium This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you Equilibrium price and quantity from changes in both supply and demand. Following along are instructions in the video below:
“Now in these bottom. Four let s think about the situation where both of the the curves might move so let s first imagine a scenario. Where supply goes up demand goes down. So once again maybe a major producer is entering into the market supply goes up and that study comes out that ice cream is less nhealthy than suspected so demand goes down.
What is going to happen to your equilibrium price and quantity. Pause. This video and try to figure it out well if the supply goes up the supply curve is going to shift to the right just like we saw up here. So our supply curve is ngoing to shift like this so this would be s2.
It s ngoing to shift to the right and down and so our demand. If it goes down for a given price people would demand less quantity. So we re shifting to the left. And down.
This is d2 right over here shifted to the left and down. And so. What is our new equilibrium point at least how we ve drawn nit right over here. So our new equilibrium.
Npoint looks like this..
It s clear that our price went down. So price has gone down. But what about quantity well this is actually nan interesting thing depending on how i draw it if we don t know the exact numbers here. I could have drawn it so that the quantity might have stayed the same.
I could have drawn it here it looks like the quantity nwent up a little bit. But if i drew my new ndemand curve like this my quantity would have ngone down a little bit so actually in this situation price for sure is going to go down you have more competition namongst. The suppliers and there s less demand. But it s unclear what happens to quantity so quantity in this situation is indeterminate.
We could say now let s go the other way around let s assume that supply goes down supply goes down and demand goes up so what would happen in that case. Pause. The video and try to figure it out or if supply goes down our supply. Curve is going nto shift to the left and up at a given price.
We will supply less and so this would be s2 right over here we re gonna shift to the left and up and our demand has gone up at a given price. We would demand more or at a given quantity. We nwould be willing to pay more so we would shift our ndemand curve now d2. We would shift to the right and up and our new equilibrium point the way that i ve drawn it is right over here.
And so here..
We have p2 and then here at least nthe way. I ve drawn it i have q2 my graph is ngetting a little bit messy. But what happened well the price unambiguously goes up it makes sense our supply has gone down and more people wanna buy the ice cream. But what about quantity well once again depending non how you draw it i could make the quantity ngo up a little bit.
I could make it stay neutral. I could make it go down. So you would actually nhave to know the specifics of those curves. Exactly their shapes in order to figure out nwhat happens to quantity.
You can t make a judgment just based on these general upward and downward sloping curves. Now let s go and make nboth of them increase. So let s say that both supply goes up and demand goes up so supply going up the curve would shift to the right and down. So.
That s supply two and then demand going up demand at a given quantity. People would be willing nto pay a higher price or at a given price. People would be willing to take on a higher quantity. So demand has gone over here.
So we ve shifted to the right and up and our new equilibrium point nlooks like right over there so it s clear..
It s unambiguous that our new equilibrium. Nquantity q2. Has gone up q. Quantity has gone up.
But price now is ambiguous depending on how i drew these curves. I could make it look like nthe price is the same i could make it look like it s gone up or i could make it look nlike. It s gone down and so the price here is ambiguous and last. But not least let s imagine a situation where they both go down.
Where supply goes down and demand goes down. So supply going down will nshift to the left and up once again one way to think about it at a given price you would nbe willing to supply less. So that s s2 right over here and demand. I ll do demand nin a different color.
It s nice to do it in a different color. If my demand has gone down. If my demand goes down at a given price people will demand less. So my demand has gone down something like that or at a given quantity.
People would be willing to pay less and so my equilibrium npoint right over here my equilibrium quantity..
Q2 has clearly gone down that makes sense they re supplying less and people want it less so quantity clearly went down quantity goes down. But price once again is ambiguous depending on how i draw. It i could make it look nlike. It stays the same.
I could make it go up ni can make it go down it would depend on the particulars of those curves to actually determine what would happen to nprice in that situation and of course. Let s not forget nto label. Our curves here that was d2. In the previous example and this is d2 in that last example the only reason why i m nmaking sure we do that is one it makes it clearer and also when you need to do this on something like an ap exam.
It s really important that nyou label all of the things the title of your chart nyour equilibrium prices and quantities you label the curves you say the vertical axis is p the horizontal axis is q. And that when you have a nshift that you show that shift and actually here. I forgot nto draw that shift as well so that you have arrows that nshow your shift in supply or demand. So all of these components make sure that you re able to draw it ” .
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