Transcript Changes in Equilibrium

Equilibrium
Movements
Understand how shifts of the supply, demand, or both
curves effects equilibrium price and equilibrium quantity
In the Chips Results:
120
100
80
Round 1:
Round 2:
60
Round 3:
Round 4:
40
20
0
$5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 $4.40 $4.30 $4.20 $4.10 $4.00 $3.90 $3.80 $3.70 $3.60 $3.50
Demand/Supply Shifts—Sample
Questions
• 1. The workers who produce a popular computer
game go on strike for 2 months. How will this effect
equilibrium price and quantity for the computer
game?
• 2. The manufacturer of a popular computer game
raises price of the game. How will this effect
equilibrium price and quantity of the computer
game?
Problem #1
• Americans start to drive electric poweredcars rather than gasoline-powered cars.
What will happen to the price and
quantity at equilibrium of gasoline?
Problem #2
• IBM expands marketing into Australia,
China, and Japan. How will this effect
equilibrium price and quantity of IBM
computers?
Problem #3
• Southwest Airlines lowers the price of
their Philadelphia to Boston flights. How
will this effect equilibrium price and
quantity of Philadelphia to Boston travel?
Problem #4
• Merck Pharmaceuticals removes the
popular competitor Vioxx from the
market. How will this effect equilibrium
price and quantity of Celebrex?
Problem #5
• The FDA allows olive oil producers to
advertise that there is evidence that its
use reduces the risk of heart disease. How
will this effect equilibrium price and
quantity of olive oil?
Problem #6
•
The real disposable income of middle class
Americans workers declines. How will this
effect the equilibrium price and quantity
of Ford pick-up trucks?
Problem #7
• Apple increases the prices of iPods. What
happens to equilibrium price and
quantity?
On the AP Exam…
• Predictions are based on economic theory…
• Price, quantity, shift
• Given scenarios with change in multiple choice format
• Memorize
1. Demand , then P and Q
2. Demand , then P and Q
3. Supply , then P and Q
4. Supply, then P and Q
• When one curve shifts, we can determine the direction of
both equilibrium price and equilibrium quantity
Shifts of Supply AND Demand
• When both curves shift, we cannot be certain of the movements of
equilibrium price and equilibrium quantity
For example: New England in peak season for summer salmon
fishing…people want more salmon and there is more of it; however:
• Demand 
and
Supply ;
Price  Quantity 
Price  Quantity 
***Price is inconclusive from a theoretical perspective.
We can conclude that price is indeterminate.
• IF, and only if, we are given information about the relative size of
the shift then we can illustrate the increase or decrease
graphically.
• Example: The diamond market in Japan. People go from not
buying engagement rings to becoming a social norm. DeBeers
opens 500 new diamond stores.