1. Supply and Demand Shocks Unit Four, Lesson Two Economics Economics

2. Supply and Demand Shocks Recall that equilibrium is a state of balance where Qd = Qs and there is no tendency for change at equilibrium. Recall that equilibrium is a state of balance where Qd = Qs and there is no tendency for change at equilibrium. However, if there is a change in demand or supply, the entire curve will shift. However, if there is a change in demand or supply, the entire curve will shift. When this happens, there is a new point where Qs = Qd. When this happens, there is a new point where Qs = Qd. This is what the market will work towards to make the new equilibrium price. This is what the market will work towards to make the new equilibrium price.

3. Increase in Demand Say there is an increase in demand and the entire demand curve shifts right: Say there is an increase in demand and the entire demand curve shifts right:

4. Increase in Demand This increase in demand will create a new equilibrium point. This increase in demand will create a new equilibrium point. The equilibrium price and quantity are both increased. The equilibrium price and quantity are both increased.

5. Decrease in Demand Now say that demand decreases, shifting the entire demand curve left: Now say that demand decreases, shifting the entire demand curve left:

6. Decrease in Demand This decrease in demand will create a new equilibrium price and quantity, both lower than the original eq. p and q This decrease in demand will create a new equilibrium price and quantity, both lower than the original eq. p and q

7. Decrease in Supply If there is a decrease in supply, the entire supply curve shifts left: If there is a decrease in supply, the entire supply curve shifts left:

8. Decrease in Supply This decrease in supply will cause equilibrium price to increase and equilibrium quantity to decrease. This decrease in supply will cause equilibrium price to increase and equilibrium quantity to decrease.

9. Increase in Supply If there is an increase in supply, the entire supply curve will shift right: If there is an increase in supply, the entire supply curve will shift right:

10. Increase in Supply The increase in the supply curve causes equilibrium price to decrease and equilibrium quantity to increase. The increase in the supply curve causes equilibrium price to decrease and equilibrium quantity to increase.

11. S and D Shocks If both curves shift: If both curves shift:

12. S and D Shocks What happens to equilibrium price and quantity will depend on the relative magnitudes (how big the changes are compared to each other) of the shifts What happens to equilibrium price and quantity will depend on the relative magnitudes (how big the changes are compared to each other) of the shifts

13. Elasticity The slope of the curves can affect the change as well: The slope of the curves can affect the change as well: