Shifts Happening On The Graph

Question 1

What happens when there is excess demand (shortage)in the market

Answer 1

Consumers will bid up the price. This signals to and incentivises producers to supply more, leading to an extension in supply. Rations how much consumers demand leading to a contraction in demand. Which brings us to a new equilibrium at a higher price.

Question 2

What happens when demand falls

Answer 2

Fall in price
And a fall in quantity demanded.

Question 3

Supply increases?

Answer 3

Lower price and higher quantity produced