Changes In Equilibrium

Understanding A Shift Since markets tend toward equilibrium a change in demand will set market forces in motion that lead the market to a new equilibrium price and quantity sold.

Excess Of Supply A surplus is a situation in which quantity supplied is greater than quantity demanded. If a surplus occurs, producers reduce prices to sell their products. This creates a new market equilibrium.

Excess Of Demand The exact opposite will occur when supply is decreased. As supply decreases, producers will raise prices and demand will decrease.

Analyzing Shifts in Supply and Demand $800 $600 $400 $200 Price Output (in millions) Graph A: A Change in Supply 1 2 3 4 5 Graph B: A Change in Demand Output (in thousands) $60 $50 $40 $30 $20 $10 900 800 700 600 500 400 300 200 100 Price Original supply Demand a New demand c b New supply b c Supply Original demand a Graph A shows how the market finds a new equilibrium when there is an increase in supply. Graph B shows how the market finds a new equilibrium when there is an increase in demand.