Assume that B is the initial curve.

Supply Shifts Review

Equilibrium

6

5

4

3

2

1

02 4 6 8 10 12 14 16 18Bushels of Corn (thousands per week)

Pri

ce (

per

bu

shel)P Qd

$5

4

3

2

1

2,000

4,000

7,000

11,000

16,000

MarketDemand

200 Buyers

P Qs

$5

4

3

2

1

12,000

10,000

7,000

4,000

1,000

MarketSupply

200 Sellers

7

3

D

S

What happened to the equilibrium price?Increased

What happened to the equilibrium quantity?Increased

Increase in Demand

.50

1.00

1.50

2.00

1 2 3 4

Pric

e

Quantity

Demand for Pizza

D1

D

What happened to the equilibrium price?Decreased

What happened to the equilibrium quantity?Decreased

Decrease in Demand

.50

1.0

01

.50

2.0

0

1 2 3 4

Pri

ce

Quantity

Demand for Pizza

D1

D

What happened to the equilibrium price?Decreased

What happened to the equilibrium quantity?Increased

Increase in Supply

.50

1.00

1.50

2.00

1 2 3 4

Pric

e

Quantity

Market for Pizza

D

S S1

What happened to the equilibrium price?Increased

What happened to the equilibrium quantity?Decreased

Decrease in Supply

.50

1.0

01.

502.

001 2 3 4

Pri

ce

Quantity

Market for Pizza

D

SS1

What happened to the equilibrium price?Indeterminate

What happened to the equilibrium quantity?Increased

Increase in Both Supply and Demand

.50

1.00

1.50

2.00

1 2 3 4P

rice

Quantity(per slice, in hundreds)

Increasing Both D and S

What happened to the equilibrium price?Indeterminate

What happened to the equilibrium quantity?Decreased

Decrease in Both Supply and Demand

What happened to the equilibrium price?Increased

What happened to the equilibrium quantity?Indeterminate

Increase in Demand, Decrease in Supply

What happened to the equilibrium price?Decreased

What happened to the equilibrium quantity?Indeterminate

Decrease in Demand, Increase in Supply

Quantity supplied does NOT equal quantity demanded

Market will self correct to get back to equilibrium

Shortage—lower than market price, so QD greater than QS

Surplus—higher than market price, so QS greater than QD

Disequilibrium

Price Ceiling—gov. set maximum price, helps consumers

6

5

4

3

2

1

02 4 6 8 10 12 14 16 18Bushels of Corn (thousands per week)

Pri

ce (

per

bu

shel)P Qd

$5

4

3

2

1

2,000

4,000

7,000

11,000

16,000

MarketDemand

200 Buyers

P Qs

$5

4

3

2

1

12,000

10,000

7,000

4,000

1,000

MarketSupply

200 Sellers

7

3

D

S

$2 Price Ceiling

Shortage

Price Floor—gov. set minimum price, helps producers

6

5

4

3

2

1

02 4 6 8 10 12 14 16 18Bushels of Corn (thousands per week)

Pri

ce (

per

bu

shel)P Qd

$5

4

3

2

1

2,000

4,000

7,000

11,000

16,000

MarketDemand

200 Buyers

P Qs

$5

4

3

2

1

12,000

10,000

7,000

4,000

1,000

MarketSupply

200 Sellers

7

3

D

S

$4 Price Floor

Surplus

Card # 5 and #6Card #5—Double ShiftsDraw a demand and supply graph for an example productGive two scenarios—one that will shift demand and one that

will shift supply. Show the shifts on the card. Use a different color and label

the new equilibrium E1Tell me what happened to price and quantityOne variable will be unknown—Don’t say “Stays the Same”Card #6 Price Ceilings and FloorsDraw a demand and supply graph for an example product—

You need numbers the P and Q axes.Ask a question about a government set price and what will

result from the set price (what happens to QD, QS, amount sold). You must use the words price ceiling or price floor. Answer your question.