Topic 2: Changes to Demand and Supply

Question 1

what are the three steps when analysing changes in demand and supply

Answer 1

1. which curve is affected
2. which way does curve shift
3. compare initial and new equilibrium

Question 2

in step 3, when comparing new and initial equilibrium, what must be included

Answer 2

showing a. shortage or surplus and b. how the shift effects equilibrium price and quantity

Question 3

what occurs (equilibrium. price and quantity) when an event has caused demand to shift to right (perhaps increased interest in product)

Answer 3

demand shift to right > shortage
> sellers raise price
> equilibrium price AND quantity increase

Question 4

what occurs (equilibrium. price and quantity) when an event has caused demand to shift to left (perhaps decreased interest in product)

Answer 4

demand shift to left > surplus
> sellers lower price
> equilibrium price AND quantity decrease

Question 5

When one curve shift, what is the terminology used to describe change in other curves movement

Answer 5

e.g. - increases quantity supplied, not increase in supply

Question 6

describe the terminology of key movements ove moving along and shifting

Answer 6

• Shift in supply curve = change in supply
• Shift in demand curve = change in demand
• Movement along fixed supply curve = change in quantity supplied
• Movement along fixed supply curve = change in quantity supplied

Question 7

what occurs (equilibrium. price and quantity) when an event has caused supply to shift to left (perhaps decreased ability to produce product)

Answer 7

left shift in supply > shortage
- sellers raise price
- equilibrium price increase
quantity decrease

Question 8

what occurs (equilibrium. price and quantity) when an event has caused supply to shift to right (perhaps increased ability to produce product)

Answer 8

right shift in supply > surplus
- sellers lower price
- - equilibrium price decrease
quantity increase

Question 9

whats important to remember when talking about substituting items

Answer 9

only shift if price other good changes

Question 10

what are two outcomes when both supply and demand shift and what occurs in both

Answer 10

• In both outcomes, equilibrium price increases
  1. Demand increases substantially, supply falls a little
  • Equilibrium quantity rises
  2. Supply decreases substantially, demand rises a little
  Equilibrium quantity falls