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Supply and Demand Scenarios

Supply and Demand Scenarios. Fall 2013. Effects of Shifts on Equilibrium. Graph the following to determine the effects of these shifts:. Single Shifts. Single shifts produce predictable results

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Supply and Demand Scenarios

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  1. Supply and Demand Scenarios Fall 2013

  2. Effects of Shifts on Equilibrium Graph the following to determine the effects of these shifts:

  3. Single Shifts Single shifts produce predictable results When only one line shifts, the other experiences a shift along the original curve (“quantity supplied/demanded”)

  4. Dual Shifts Dual shifts create ambiguous results The overall effect is the result of the relative size of shifts

  5. Return to Equilibrium? Surpluses/shortages are depicted on the graph as the gap between supply and demand at a certain price (i.e., the original equilibrium price) Some changes return to their original point of equilibrium over time, but – in the short-term – establish a new PE and QE Other changes are permanent and establish a new PE and QE

  6. Effects on Complements & Substitutes • Complements tend to follow the same pattern as the product in question – though this can be ambiguous: For instance, the law of demand tends to apply:  Price of x,  Demand for y (its complement) But the law of supply doesn’t always follow. • Substitutes follow the opposite pattern (especially with regard to demand), but again can be ambiguous: • Price of x,  Demand for z (its substitute)

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