Learning journal unit 2

In a supply-demand graph, the equilibrium price and quantity are determined by the

intersection of the supply and demand curves. When there is a change in either supply or

demand, it will affect the equilibrium price and quantity in the market.

a) When only supply decreases, it means that producers are unable or unwilling to produce as

much of a good or service at each price level. It may causes the supply curve to shift to the

left. As a result, there will be less of the good or service available in the market at any given

price. The decrease in supply will cause to an increase in the equilibrium price and also a

decrease in the equilibrium quantity.

The increase in price occurs because with less supply available, consumers are willing to pay

more for the limited quantity of goods or services. As a result, the demand curve shifts along

with the new higher prices until it intersects with the new lower quantity supplied. This new

equilibrium point will have a higher price and lower quantity compared to the original

equilibrium point.

b) Conversely, when only supply increases, it means that producers are able or willing to

produce more of a good or service at each price level. It causes the supply curve to shift to the

right. With more goods or services available in the market at any given price, there will be an

increase in both equilibrium quantity and a decrease in equilibrium price.

The decrease in price occurs because with more supply available, consumers do not need to

pay as much for goods or services. As a result, they are willing to purchase more at lower
prices until they reach a new equilibrium point where demand intersects with increased

supply.

c) If only demand increases, it means that consumers are willing and able to buy more of a

good or service at each price level. It may causes the demand curve to shift to the right. With

higher demand for goods or services at any given price, there will be an increase in both

equilibrium price and quantity.

The increase in price occurs because with higher demand, consumers are willing to pay more

for goods or services. As a result, producers can charge higher prices until they reach a new

equilibrium point where increased demand intersects with existing supply.

d) On the other hand, if only demand decreases, it means that consumers are less willing or

able to buy as much of a good or service at each price level. It may causes the demand curve

to shift to the left. With lower demand for goods or services at any given price, there will be a

decrease in both equilibrium price and quantity.

The decrease in price occurs because with lower demand, consumers do not need to pay as

much for goods or services. As a result, producers may need to lower prices until they reach a

new equilibrium point where decreased demand intersects with existing supply.

In conclusion, changes in either supply or demand can have significant impacts on both

equilibrium price and quantity in a market economy. Understanding how these changes affect

market dynamics is crucial for businesses and policymakers alike when making decisions

about pricing strategies and resource allocation.

References:

1. Mankiw NG (2014). Principles of Economics (7th ed.). Cengage Learning.

2. Pindyck RS & Rubinfeld DL (2017). Microeconomics (9th ed.). Pearson.

3. Perloff JM (2018). Microeconomics (8th ed.). Pearson Education Limited.

https://www.investopedia.com/terms/l/law-of-supply-demand.asp

https://open.lib.umn.edu/principleseconomics/chapter/3-3-demand-supply-and-equilibrium/

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/basic-

economics-concepts-macro/market-equilibrium-disequilibrium-and-changes-in-equilibrium/

a/lesson-summary-market-equilibrium-disequilibrium-and-changes-in-equilibrium