11. A Change in the Quantity Demanded Versus a Change in Demand
A change in price results in a movement along the demand curve, which is change in the quantity demanded. A change in other factors shifts the demand curve, which is a change in demand.
In the figure, the movement along demand curve D0 from point a to point b as a result of the price rising from $2 to $4 is a change in the quantity demanded. The shift of the demand curve from D0 to the new demand curve D1 is a change in demand.
12. The law of supply states that other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller the quantity supplied. The law of supply occurs because an increase in the quantity of a good produced results in an increase in its marginal cost. So the price must rise in order to induce firms to increase the quantity they produce.
13. A Change in the Quantity Supplied Versus a Change in Supply
A change in price results in a movement along the supply curve, which is change in the quantity supplied. A change in other factors shifts the supply curve, which is a change in supply.
In
the top figure, the movement along supply curve S0
from point a
to point b
as a result of the price rising from $2 to $4 is a change in the
quantity supplied. The shift of the supply curve from S0
to the new supply curve S1
is a change in supply.
14. Market Equilibrium
An equilibrium is a situation in which opposing forces balance.
The equilibrium price is the price at which the quantity demanded equals the quantity supplied. The equilibrium quantity is the quantity bought and sold at the equilibrium price. In the bottom figure, the equilibrium price is $3 and the equilibrium quantity is 30 per week.
Price as a Regulator and Price Adjustments
The price of a good regulates the quantities demanded and supplied.
Shortage: If the price is below the equilibrium price, consumers plan to buy more than firms plan to sell. A shortage results, which forces the price higher, toward the equilibrium price. In the figure, there is a shortage at any price below $3 and so the price is forced higher, toward the equilibrium price.
Surplus: If price is above the equilibrium, firms plan to sell more than consumers plan to buy. A surplus results, which forces the price lower, toward the equilibrium price. In the figure, there is a surplus at any price above $3 and so the price is forced lower, toward the equilibrium price.
The price continues to adjust until the quantity supplied equals quantity demanded.
15. Predicting Changes in Price and Quantity
The demand and supply model can be used to determine how changes in factors affect a good’s price and quantity.
A Change In Demand
If the demand for a good or service increases, the demand curve shifts rightward. As a result, the equilibrium price rises and the equilibrium quantity increases.
If the demand for a good or service decreases, the demand curve shifts leftward. As a result, the equilibrium price falls and the equilibrium quantity decreases.
Supply does not change and the supply curve does not shift. Instead there is a change in the quantity supplied and a movement along the supply curve.
The figure illustrates an increase in demand. In the figure the demand curve shifts from D0 to D1. As a result, the equilibrium price rises from $3 to $4 and the equilibrium quantity increases from 30 to 40. The supply curve does not shift; there is, however, a movement along the supply curve.
A Change In Supply
If the supply of a good or service increases, the supply curve shifts rightward. As a result, the equilibrium price falls and the equilibrium quantity increases.
If the supply of a good or service decreases, the supply curve shifts leftward. As a result, the equilibrium price rises and the equilibrium quantity decreases.
Demand does not change and the demand curve does not shift. Instead there is a change in the quantity demanded and a movement along the demand curve.
The figure illustrates an increase in supply. In the figure the supply curve shifts from S0 to S1. As a result, the equilibrium price falls from $3 to $2 and the equilibrium quantity increases from 30 to 40. The demand curve does not shift; there is, however, a movement along the demand curve.