Supply & Demand: Equilibrium Prices

AS Economics

Aims and Objectives

Aim: Understand how equilibriums change

Level

Objectives:
Define equilibrium Draw a changing market equilibrium

E-D C-B

B-A
A-A*

Analyse the effects of a changing equilibrium on price Evaluate the case of shifts in supply and demand on equilibrium prices

Starter
Draw an economy in equilibrium. Draw a diagram showing excess supply.

Draw a diagram showing excess demand.

Shifts in Market Demand

The demand curve may shift to the right (increase) for several reasons:
Rise in price of substitutes Fall in price of complements Changing fashions/trends A fall in interest rates Rise in consumer confidence

An Outward Shift in Demand

Price S

P2
P1 D2 D1

Q1 Q2

Qty

An Inward Shift in Demand

Price S

P1
P2 D1 D2

Q2 Q1

Qty

Changes in Market Supply

The supply curve may shift outwards if there is:
A fall in costs of production Government subsidies Fall in price of substitutes An improvement in technology Entry of new suppliers to the market

An Outward Shift in Supply

Price

S1 S2
P1 P2 D

Q1 Q2

Qty

An Inward Shift in Supply

Price

S2 S1
P2 P1 D

Q2 Q1

Qty

Shifts in Market Demand and Market Supply

An Inward Shift in Demand and an Inward Shift in Supply

Price

S2 S1
P2 P1 D2 D1

Q2

Q1

Qty

An Outward Shift in Demand and an Outward Shift in Supply

Price

S1 S2
P1 P2 D1 D2

Q1

Q2

Qty

Changes in Market Supply & Demand

Case Studies Worksheet Feedback

London 2012 Supply & Demand Case Study