EC 201 Chapter Notes - Chapter 4: Economic Equilibrium, Demand Curve
Document Summary
When demand increases, the demand curve shifts to the right. This leads to a new equilibrium, in which both the equilibrium price and the equilibrium quantity are higher than they were before the shift. If demand decreases, so that the demand curve shifts to the left, we get the opposite effects: both the equilibrium price and the equilibrium quantity are lower than they were before the shift. When supply increases, the supply curve shifts to the right. This leads to a new equilibrium, in which the equilibrium price is lower and the equilibrium quantity is higher than before the shift. If supply decreases, the supply curve shifts to the left, and we get a higher equilibrium price and a lower equilibrium quantity than before. If the floor is above the equilibrium price, it will lead to surpluses. To deal with the surpluses, governments often pass additional laws, designed to buy up the surpluses or to decrease supply.