Transcript Company Name - University of Wisconsin–La Crosse

ECO 120 - Global
Macroeconomics
TAGGERT J. BROOKS
Module 07
SUPPLY AND DEMAND CHANGES IN EQUILIBRIUM
Equilibrium and Shifts of the Demand Curve
Price of coffee
beans
An increase in
demand…
E
P2
Price
rises
E
P1
Supply
… leads to a movement along the
supply curve due to a higher
equilibrium price and higher
equilibrium quantity.
2
1
D
2
D1
Q
1
Q2
Quantity of coffee beans
Equilibrium and Shifts of the Supply Curve
Price of
coffee beans
P
S
E
2
S
2
A decrease in
supply…
2
… leads to a movement along
the demand curve due to a
higher equilibrium price and
lower equilibrium quantity.
Price
rises
P
1
E1
1
Demand
Q
2
Q
1
Quantity falls
Quantity of
coffee beans
Simultaneous Shifts of Supply and Demand Curves
(a) One possible outcome: Price Rises, Quantity Rises
Price of coffee
Small decrease
in supply
E
P 2
E
P 1
2
S Two opposing forces
1
determining the
equilibrium quantity.
2
The increase in
demand dominates
the decrease in
supply.
1
D
Q
S
1
D
1
2
Large increase
in demand
Q2
Quantity of coffee
Simultaneous Shifts of Supply and Demand
Curves
(b) Another Possibility Outcome: Price Rises, Quantity Falls
Price of coffee
Large decrease in
supply
E
P
S
Two opposing forces
S
1 determining the equilibrium
quantity.
2
2
E
P
2
1
1
Small increase in
demand
D
D
Q
Q
2
1
Quantity of coffee