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Eco 6351 Economics for Managers Chapter 3c. Supply and Demand

Eco 6351 Economics for Managers Chapter 3c. Supply and Demand. Prof. Vera Adamchik. Demand and Supply: Predicting Changes in Price and Quantity. A change in demand A change in supply A change in both demand and supply. An Increase in Demand. Initially, demand and supply are as shown here

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Eco 6351 Economics for Managers Chapter 3c. Supply and Demand

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  1. Eco 6351Economicsfor ManagersChapter 3c. Supply and Demand Prof. Vera Adamchik

  2. Demand and Supply: Predicting Changes in Price and Quantity • A change in demand • A change in supply • A change in both demand and supply

  3. An Increase in Demand • Initially, demand and supply are as shown here • The eqm price is $3 and the eqm quantity is 4 million tapes a week

  4. An Increase in Demand • Then, demand increases • The demand curve shifts rightward

  5. An Increase in Demand • At the original price, there is a shortage

  6. An Increase in Demand • The quantity supplied increases and the price rises • The quantity demanded falls

  7. An Increase in Demand • In the new equilibrium, the shortage has been eliminated • The new eqm price is $5 and the new eqm quantity is 6 million

  8. A Decrease in Demand • Make your own diagram to illustrate this case

  9. An Increase in Supply • Initially, demand and supply are as shown here • The eqm price is $3 and the eqm quantity is 4 million tapes a week

  10. An Increase in Supply • An increase in supply occurs and the supply curve shifts rightward • At the original price, there is a surplus of tapes

  11. An Increase in Supply • Buyers are willing to buy more but at a lower price • So, the price falls • As the price falls, the quantity supplied decreases

  12. An Increase in Supply • In the new equilibrium, the surplus has been eliminated • The new eqm price is $2 and the new eqm quantity is 6 million

  13. A Decrease in Supply • Make your own diagram to illustrate this case

  14. When both D and S change • If both demand and supply change and we do not have any information about the magnitude of each shift, it is not possible to tell what happens to both equilibrium price and quantity.

  15. When both D and S change… • Consider each shift separately, every time starting from the original equilibrium • Write down what will happen to the equilibrium price and equilibrium quantity as a result of each shift • Combine your conclusions from Step 2 and make your statement about the overall impact of all changes in demand and supply

  16. Changes in both Demand and Supply • When both demand and supply increase, the equilibrium quantity traded increases but the equilibrium price may either rise or fall

  17. Changes in both Demand and Supply • When both demand and supply decrease, the equilibrium quantity traded decreases but the equilibrium price may either rise or fall

  18. Changes in both Demand and Supply • When demand decreases and supply increases, the equilibrium price falls and the equilibrium quantity traded might increase or decrease

  19. Changes in both Demand and Supply • When demand increases and supply decreases, the equilibrium price rises and the equilibrium quantity traded might increase or decrease

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