Micro CHAPTER 2.7:
Changes in Equilibrium
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CHAPTER SUMMARY
Market equilibrium can change over time. This is because, when one of the determinants of demand or supply changes, the curves move left or right, creating a new equilibrium price and quantity. The chart below shows four possible shifts that can change the market equilibrium.
Top left: Increase in supply. When supply increases, the equilibrium price falls, and the equilibrium quantity rises.
Bottom left: Decrease in supply. When supply decreases, the equilibrium price rises, and the equilibrium quantity falls.
Top right: Increase in demand. When demand increases, the equilibrium price rises, and the equilibrium quantity also rises.
Bottom right: Decrease in demand. When demand decreases, the equilibrium price falls, and the equilibrium quantity also falls.
There can also be situations where both the supply and demand curves shift, as seen in the chart below.
Top left: Increase in supply, decrease in demand. Equilibrium price falls, and the effect on equilibrium quantity is indeterminate (uncertain/unknown).
Bottom left: Decrease in supply, increase in demand. Equilibrium price rises, and the effect on equilibrium quantity is indeterminate (uncertain/unknown).
Top right: Decrease in supply, decrease in demand. The effect on equilibrium price is indeterminate, and equilibrium quantity falls.
Bottom right: Increase in supply, increase in demand. The effect on equilibrium price is indeterminate, and equilibrium quantity rises.
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