Fall 2013 Supply and Demand Scenarios - PowerPoint Presentation

Fall 2013 Supply and Demand Scenarios

Effects of Shifts on Equilibrium Graph the following to determine the effects of these shifts: Change in Demand Change in Supply Effect on P E Effect on Q E  ---  --- ---  ---         

Single Shifts Single shifts produce predictable results When only one line shifts, the other experiences a shift along the original curve (“quantity supplied/demanded”) Change in Demand Change in Supply Effect on P E Effect on Q E  ---    ---   ---    ---   

Dual Shifts Dual shifts create ambiguous results The overall effect is the result of the relative size of shifts Change in Demand Change in Supply Effect on P E Effect on Q E How to resolve ambiguity   , , or N/C  If ∆D>∆S, price will rise If ∆S>∆D, price will fall   , , or N/C  If ∆D>∆S, price will fall If ∆S>∆D, price will rise    , , or N/C If ∆D>∆S, quantity will rise If ∆S>∆D, quantity will fall    , , or N/C If ∆D>∆S, quantity will fall If ∆S>∆D, quantity will rise

Return to Equilibrium? Surpluses/shortages are depicted on the graph as the gap between supply and demand at a certain price (i.e., the original equilibrium price) Some changes return to their original point of equilibrium over time, but – in the short-term – establish a new P E and Q E Other changes are permanent and establish a new P E and Q E

Effects on Complements & Substitutes Complements tend to follow the same pattern as the product in question – though this can be ambiguous: For instance, the law of demand tends to apply:  Price of x ,  Demand for y (its complement) But the law of supply doesn’t always follow. Substitutes follow the opposite pattern (especially with regard to demand), but again can be ambiguous: Price of x,  Demand for z (its substitute)