Question

Give a realistic and unique example of how equilibrium prices (p*) and equilibrium quantity (q*) are re-established after the puncturing of equilibrium (i.e., the demand and/or supply curve shift). Explain what would cause one or both of the curves to shift, if this would create a surplus or shortage, and the ensuing pressure to change this would have on prices and quantity purchased/sold as a result. Make sure to accurately discuss changes in quantity supplied or demanded vs. changes in supply or demand.  

Answer two thematic questions of the module: Are Markets Effective Tools and What Are Their Impacts? Use the economic concepts discussed in both Chapters 3 and 5 of the openstax microeconomic.

Answer 1

Answer )

The demand and supply curves interact in order to achieve equilibrium in the market. The equilibrium generally means that the goods market is in balance meaning that the quantity of goods demanded by the individuals is exactly equal to the quantity of goods supplied by the market.

When the demand or supply curve shifts as a result of a change in taste or increase in technology, the equilibrium is re-established after the change in price and quantity and the market again achieves the order and balance to operate.

For example, in the below image, we can see that the supply curve shifts towards the right as a result of improvement in technology. Now, the quantity of goods in the market increases from Q to Q' and there is excess supply in the market at the old price and nobody would be willing to purchase the excess supply unless there is any change in the price. So, in order to induce people to purchase the product, the price is reduced from P to P' as can be seen in the diagram.

So, we can see that the increase in supply leads to decline in prices and an increase in the quantity of goods in the market.

Difference between Change in quantity demanded and Change in Demand.

Change in quantity demanded - It occurs when there is change in the quantity demanded by the individuals due to the change in the price level. There is a movement along the demand curve in this case.

Change in Demand - It occurs when there is change in demand by the individuals due to the factor other than the price. In this case, there is shift in the demand curve.