Macroeconomics

‭At $180, Qs is equal to 600 units and Qd is equal to 200 units. This results in a surplus of 400 units.‬

‭Producers‬‭are‬‭happy‬‭to‬‭supply‬‭at‬‭this‬‭high‬‭price‬‭since‬‭it‬‭allows‬‭them‬‭to‬‭make‬‭more‬‭proft.‬‭However,‬‭the‬ ‭low‬ ‭demand‬ ‭level‬ ‭forces‬ ‭them‬ ‭to‬ ‭reduce‬ ‭prices‬ ‭in‬ ‭order‬ ‭to‬‭attract‬‭consumers.‬‭This‬‭process‬‭continues‬ ‭until the market is back at its equilibrium point X where price is equal to $140.‬ ‭Changes in Market Equilibrium‬ ‭The‬ ‭equilibrium‬ ‭price‬ ‭and‬ ‭quantity‬ ‭in‬ ‭a‬ ‭market‬ ‭change‬ ‭when‬ ‭there‬ ‭are‬ ‭changes‬ ‭in‬ ‭the‬ ‭demand‬ ‭and‬ ‭supply for a product.‬ ‭When‬ ‭the‬ ‭supply‬ ‭and/or‬ ‭demand‬ ‭curve‬ ‭shifts,‬ ‭their‬ ‭intersection‬ ‭point‬ ‭changes‬ ‭resulting‬ ‭in‬ ‭a‬ ‭new‬ ‭equilibrium‬ ‭point.‬ ‭These‬ ‭changes‬ ‭and‬ ‭new‬ ‭equilibrium‬ ‭levels‬ ‭are‬ ‭illustrated‬‭in‬‭the‬‭following‬‭table‬‭and‬ ‭diagram where point X is the original equilibrium.‬

‭Table 7: Summary of Changes in Market Equilibrium‬

‭Change‬

‭Change in‬ ‭Equilibrium Price‬ ‭(P*)‬

‭Change in Equilibrium‬ ‭Quantity (Q*)‬

‭Example on Graph‬

‭Supply increases ↑‬ ‭(shifts right)‬

‭P ↓‬

‭Q ↑‬

‭X → W‬

‭Supply decreases ↓‬ ‭(shifts left)‬

‭P ↑‬

‭Q ↓‬

‭X → R‬

‭39‬

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