Transcript No Slide Title

MARKET ADJUSTMENTS
Changes To Demand And Supply
MARKET ADJUSTMENTS
 The price of a product remains at the
equilibrium point until something changes
the demand and/or supply in a market.
 Changes in market demand or market
supply are not unusual, in fact, most
markets have demands and supplies that
drift around a bit.
MARKET ADJUSTMENTS
 Mostly, these change are ignored. However,
large changes in demand or supply cannot
be ignore.
 It’s possible therefore, to examine the
impact on equilibrium price and quantity of
an increase or decrease in demand, and an
increase or decrease in supply.
AN INCREASE IN DEMAND
AS A TABLE
Price
Quantity
Demanded 1
Quantity
Demanded 2
Quantity
Supplied
$1.00
500 a day
700 a day
100 a day
$2.00
400 a day
600 a day
200 a day
$3.00
300 a day
500 a day
300 a day
$4.00
200 a day
400 a day
400 a day
$5.00
100 a day
300 a day
500 a day
AN INCREASE IN DEMAND
AS A GRAPH
Market Equilibrium
Increase in Demand
$5.00
D*
D**
P rice
$4.00
$3.00
$2.00
$1.00
0
100
200
300
400
Quantity
500
600
700
AN INCREASE IN DEMAND
IN EQUATION FORM
Qd = 800 - 100(Price) and Qs = 100(Price)
Set:
Qd = Qs
Substitute: 800 - 100(Price) = 100(Price)
Simplify:
800 = 200(Price)
Solve:
$4 = Price
Qd = 800 - 100(Price)
Qs = 100(Price)
Qd = 800 - 100(4)
Qs = 100(4)
Qd = 400
Qs = 400
MARKET ADJUSTMENT TO
AN INCREASE IN DEMAND
 When demand increases a larger quantity is
demanded at every price.
 The result is an increase in price to $4.00
and an increase in quantity to 400.
A DECREASE IN DEMAND
AS A TABLE
Price
Quantity
Quantity
Quantity
Demanded 1 Demanded 2 Supplied
$1.00
500 a day
300 a day
100 a day
$2.00
400 a day
200 a day
200 a day
$3.00
300 a day
100 a day
300 a day
$4.00
200 a day
0 a day
400 a day
$5.00
100 a day
0 a day
500 a day
A DECREASE IN DEMAND
AS A GRAPH
Market Equilibrium
Decrease in Demand
$5.00
D*
P ric e
$4.00
D**
$3.00
$2.00
$1.00
0
100
200
300
Quantity
400
500
A DECREASE IN DEMAND
IN EQUATION FORM
Qd = 400 - 100(Price) and Qs = 100(Price)
Set:
Qd = Qs
Substitute: 400 - 100(Price) = 100(Price)
Simplify:
400 = 200(Price)
Solve:
$2 = Price
Qd = 400 - 100(Price)
Qs = 100(Price)
Qd = 400 - 100(2)
Qs = 100(2)
Qd = 200
Qs = 200
MARKET ADJUSTMENT TO
A DECREASE IN DEMAND
 When demand decreases a smaller quantity
is demanded at every price.
 The result is an decrease in price to $2.00
and an decrease in quantity to 200.
AN INCREASE IN SUPPLY
AS A TABLE
Price
Quantity
Demanded
Quantity
Quantity
Supplied 1 Supplied 2
$1.00
500 a day
100 a day
300 a day
$2.00
400 a day
200 a day
400 a day
$3.00
300 a day
300 a day
500 a day
$4.00
200 a day
400 a day
600 a day
$5.00
100 a day
500 a day
700 a day
AN INCREASE IN SUPPLY
AS A GRAPH
Market Equilibrium
Increas e in Supply
$5.00
S*
P r ic e
$4.00
S**
$3.00
$2.00
$1.00
0
100
200
300
400
Quantity
500
600
700
AN INCREASE IN SUPPLY
IN EQUATION FORM
Qd = 600 - 100(Price) and
Qs = 100(Price) +200
Set:
Qd = Qs
Substitute: 600-100(Price) = 100(Price)+200
Simplify:
400 = 200(Price)
Solve:
$2 = Price
Qd = 600 - 100(Price) Qs = 100(Price)+200
Qd = 600 - 100(2)
Qs = 100(2) + 200
MARKET ADJUSTMENT TO
AN INCREASE IN SUPPLY
 When supply increases a larger quantity is
supplied at every price.
 The result is a decrease in price to $2.00
and an increase in quantity to 400.
A DECREASE IN SUPPLY AS
A TABLE
Quantity
Quantity
Quantity
Price Demanded Supplied 1 Supplied 2
$1.00 500 a day
100 a day
0 a day
$2.00 400 a day
200 a day
0 a day
$3.00 300 a day
300 a day
100 a day
$4.00 200 a day
400 a day
200 a day
$5.00 100 a day
500 a day
300 a day
A DECREASE IN SUPPLY AS
A GRAPH
Market Equilibrium
Decrease in Supply
$5.00
S**
P ric e
$4.00
S*
$3.00
$2.00
$1.00
0
100
200
300
Quantity
400
500
A DECREASE IN SUPPLY IN
EQUATION FORM
Qd = 600 - 100(Price) and
Qs = 100(Price) - 200
Set:
Qd = Qs
Substitute: 600-100(Price) = 100(Price)-200
Simplify:
800 = 200(Price)
Solve:
$4 = Price
Qd = 600 - 100(Price) Qs = 100(Price)-200
Qd = 600 - 100(4)
Qs = 100(4) - 200
MARKET ADJUSTMENT TO
A DECREASE IN SUPPLY
 When supply decreases a smaller quantity is
supplied at every price.
 The result is an increase in price to $4.00
and a decrease in quantity to 200.