# MARKET ADJUSTMENTS - PowerPoint PPT Presentation

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MARKET ADJUSTMENTS. Changes To Demand And Supply. MARKET ADJUSTMENTS. The price of a product remains at the equilibrium point until something changes the demand and/or supply in a market.

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#### Presentation Transcript

Changes To Demand And Supply

• The price of a product remains at the equilibrium point until something changes the demand and/or supply in a market.

• Changes in market demand or market supply are not unusual, in fact, most markets have demands and supplies that drift around a bit.

• Mostly, these change are ignored. However, large changes in demand or supply cannot be ignore.

• It’s possible therefore, to examine the impact on equilibrium price and quantity of an increase or decrease in demand, and an increase or decrease in supply.

### AN INCREASE IN DEMAND IN EQUATION FORM

Qd = 800 - 100(Price) and Qs = 100(Price)Set: Qd = Qs

Substitute: 800 - 100(Price) = 100(Price)

Simplify: 800 = 200(Price)

Solve: \$4 = Price

Qd = 800 - 100(Price)Qs = 100(Price)

Qd = 800 - 100(4)Qs = 100(4)

Qd = 400 Qs = 400

### MARKET ADJUSTMENT TO AN INCREASE IN DEMAND

• When demand increases a larger quantity is demanded at every price.

• The result is an increase in price to \$4.00 and an increase in quantity to 400.

### A DECREASE IN DEMAND IN EQUATION FORM

Qd = 400 - 100(Price) and Qs = 100(Price)Set: Qd = Qs

Substitute: 400 - 100(Price) = 100(Price)

Simplify: 400 = 200(Price)

Solve: \$2 = Price

Qd = 400 - 100(Price)Qs = 100(Price)

Qd = 400 - 100(2)Qs = 100(2)

Qd = 200 Qs = 200

### MARKET ADJUSTMENT TO A DECREASE IN DEMAND

• When demand decreases a smaller quantity is demanded at every price.

• The result is an decrease in price to \$2.00 and an decrease in quantity to 200.

### AN INCREASE IN SUPPLY IN EQUATION FORM

Qd = 600 - 100(Price) and

Qs = 100(Price) +200

Set: Qd = Qs

Substitute: 600-100(Price) = 100(Price)+200

Simplify: 400 = 200(Price)

Solve: \$2 = Price

Qd = 600 - 100(Price) Qs = 100(Price)+200

Qd = 600 - 100(2) Qs = 100(2) + 200

Qd = 400 Qs = 400

### MARKET ADJUSTMENT TO AN INCREASE IN SUPPLY

• When supply increases a larger quantity is supplied at every price.

• The result is a decrease in price to \$2.00 and an increase in quantity to 400.

### A DECREASE IN SUPPLY IN EQUATION FORM

Qd = 600 - 100(Price) and

Qs = 100(Price) - 200

Set: Qd = Qs

Substitute: 600-100(Price) = 100(Price)-200

Simplify: 800 = 200(Price)

Solve: \$4 = Price

Qd = 600 - 100(Price) Qs = 100(Price)-200

Qd = 600 - 100(4) Qs = 100(4) - 200

Qd = 200 Qs = 200

### MARKET ADJUSTMENT TO A DECREASE IN SUPPLY

• When supply decreases a smaller quantity is supplied at every price.

• The result is an increase in price to \$4.00 and a decrease in quantity to 200.