Movements to Equilibrium

• Excess Demand


  Consumers will bid the price up till producers will expand supply, till the demand contracts and the curves will meet at an equilibrium point.
• Excess Supply


  To remove excess supply, producers reduce the price of a product, causing an expansion in demand until equilibrium is reached.
• Increase in demand - Shift to the Right

  • Competition among buyers for the limited quantity of goods will force the price up, causing an expansion in supply.
  • Raises both equilibrium price and equilibrium quantity
• Decrease in Demand - Shift to the Left

  • A lack of competition for the limited quantity of goods will force the price down, causing a contraction in supply
  • Lowers both equilibrium price and equilibrium quantity
• Increase in supply - Shift to the Right

  • Increased production among sellers will force the price down, causing an expansion in demand.
  • An increase in supply lowers the equilibrium price and raises the equilibrium quantity
• Decrease in Supply - Shift to the Left

  • Reduced production among sellers forces prices up, causing a contraction in demand.
  • A decrease in supply raises equilibrium prices and lowers equilibrium quantity
• Effects of Changing Levels of Competition & Market Power in Price & Input

  • Ensures producers are responsive to consumer demand and that they attempt to minimise production costs to maintain profitability and competition
  • Ensure the most efficient methods of production are utilised