Markets

• • In a market, prices for goods/services are determined by the interaction of demand & supply 
•  sellers will gradually adjust their prices until there is an equilibrium price and quantity that works for both parties
• rise in demand-

  • At the original price of P1, there is now a shortage as demand exceeds the supply
  • A new equilibrium develops at a price of P2 and a quantity of Q2 units

  A rise in demand causes the demand curve to shift to the right from D1→ D2
• Fall in demand- A fall in demand causes the demand curve to shift to the left from D1→ D2

  • At the original price ofP1, there is now a surplus as supply exceeds demand
  • The surplus causes prices to fall from  P1 to P2
• rise in supply-

  A rise in supply causes the supply curve to shift to the right from S1→ S2 

  • At the original price of P1, there is now a surplus as supply exceeds demand
  • new equilibrium quantity (Q2) is reached at a a lower price than before
• fall in supply A fall in supply causes the supply curve to shift to the left from S1→ S2 perhaps due to an increase in the costs of production

  • At the original price of P1, there is now a shortage as demand exceeds the supply
  • new equilibrium quantity (Q2) is reached at a a higher price than before