Changes in Quantity Demanded and Quantity Supplied
By now, you know how to shift either the Demand Curve or the Supply Curve…. …which causes the Equilibrium Price and the Equilibrium Quantity in the market to change But there is ONE more important thing that occurs when one of the curves shifts When one of the curves shifts, it impacts the other curve in a way we call “Changing the Quantity Supplied” or “Changing the Quantity Demanded”
Let’s work our way through an example: In the Market for Chocolate Candy, what happens to Equilibrium Price and Quantity if Halloween is 4 days away? S Demand will Increase, causing Equilibrium P and Q to increase P 1 P D 1 D Q We have shifted the Demand curve, causing a Change in Demand Q 1 But what do we say is happening to the Supply Curve?
When the Demand Curve shifts, it means that ALL of the buyers have changed their preferences, preferences so we’ve drawn a new curve to show this change We call this a Change in Demand But the Supply Curve hasn’t moved, so we can’t say that there has been a Change in Supply S P 1 P D 1 D Q Q 1 Instead, we say that there has been a CHANGE IN QUANTITY SUPPLIED • The change in Equilibrium Price caused by the Change in Demand causes SOME of the sellers to react to the price change • We move from one point on the Supply Curve to another point on the same Supply Curve
If we were to take away the Demand Curves on the graph, this is what we’d be left with… Now it’s easier to see that we MOVE ALONG the supply curve from one point to another point when the price of the good changes S P 1 P D D 1 Q Q 1 This also illustrates the LAW OF SUPPLY • Price and Quantity Supplied are DIRECTLY related • When Price of the good increases, the Quantity Supplied also increases • When Price of the good decreases, the Quantity Supplied also decreases
Let’s look at a Change in Supply… S 1 S P 1 P D Q 1 What happens to the Equilibrium Price and Quantity in the Market for Bananas if the US Government limits imported bananas? There is a CHANGE IN SUPPLY Supply will decrease, causing Equilibrium Price to rise and Equilibrium Quantity to decrease Q The Demand Curve doesn’t shift, so there can’t be a CHANGE IN DEMAND…. instead we have a CHANGE IN QUANTITY DEMANDED DEMAND • The Equilibrium Price increase causes the buyers to react to the price change • SOME buyers change their preferences due to the new price • There is a move from one point on the Demand Curve to another point on the same Demand Curve
If we were to take away the Supply Curves on the graph, this is what we’d be left with… S 1 S P 1 P Once again, we just MOVE ALONG the demand curve from one point to another point when the price of the good changes D Q 1 Q This illustrates the LAW OF DEMAND • Price and Quantity Demanded are INVERSELY related • When Price of the good increases, the Quantity Demanded will decrease • When Price of the good decreases, the Quantity Demanded will increase
So, when one curve shifts, it causes the price of the good to change AND a movement from one point to another point on the other curve A CHANGE IN DEMAND will trigger a price change that will cause a CHANGE IN QUANTITY SUPPLIED A CHANGE IN SUPPLY will trigger a price change that will cause a CHANGE IN QUANTITY DEMANDED