Overview
This lecture explains how shifts in supply and demand curves affect equilibrium price and quantity, using the ice cream market as an example.
Graph Setup & Labeling
- Always title and label axes on your supply and demand graphs for exams.
- The vertical axis (P) shows price; the horizontal axis (Q) shows quantity.
- The supply curve (S1) slopes upward; the demand curve (D1) slopes downward.
- The intersection of S1 and D1 is the equilibrium point (P1, Q1).
- Mark equilibrium price (P1) and quantity (Q1) clearly, using dotted lines for reference.
Effects of Supply Curve Shifts
- When supply increases (curve shifts right/down), equilibrium price falls and equilibrium quantity rises.
- When supply decreases (curve shifts left/up), equilibrium price rises and equilibrium quantity falls.
- Example: New ice cream producer increases supply, causing lower price and higher quantity.
Effects of Demand Curve Shifts
- When demand increases (curve shifts right/up), both equilibrium price and quantity rise.
- When demand decreases (curve shifts left/down), both equilibrium price and quantity fall.
- Example: Positive health news raises demand, leading to higher price and quantity.
Key Terms & Definitions
- Supply Curve — shows the relationship between price and quantity supplied.
- Demand Curve — shows the relationship between price and quantity demanded.
- Equilibrium Price (P1) — the price where supply and demand curves intersect.
- Equilibrium Quantity (Q1) — the quantity where supply and demand curves intersect.
- Shift — a movement of the entire supply or demand curve, changing equilibrium.
Action Items / Next Steps
- Practice drawing and labeling supply and demand graphs with different shift scenarios.
- Review what happens to price and quantity when supply or demand increases or decreases.