AP Economics Mr. Bernstein Module 7: Supply and Demand – Changes in Equilibrium October 2015 AP Economics Mr. Bernstein What Happens When the Demand Curve Shifts? • Know what caused the shift and which curve is shifting • When Demand increases, Equilibrium Price and Quantity increase 2 AP Economics Mr. Bernstein What Happens When the Demand Curve Shifts? • Example: New car market in a recession • When Demand decreases, Equilibrium Price and Quantity decrease 3 AP Economics Mr. Bernstein What Happens When the Supply Curve Shifts? • Example: New technology increases amount of corn grown per acre • When Supply increases, Equilibrium Price decreases but Quantity increases4 AP Economics Mr. Bernstein What Happens When the Supply Curve Shifts? • Example: Rising cotton prices cause jean manufacturers to reduce output • When Supply decreases, Equilibrium Price increases but Quantity decreases 5 AP Economics Mr. Bernstein What Happens When a Supply or Demand Curve Shifts? • Know what caused the shift • Remember curve shifts are horizontal, not vertical • Curve shifts create a surplus or shortage as the prevailing price, so prices must shift to maintain equilibrium • Carefully label all curves (ie D1, D2, S1, S2, etc.) to avoid confusing effects of simultaneous shifts 6 AP Economics Mr. Bernstein Simultaneous Shifts of Supply and Demand Curves • Example: Demand for wheat rises but Supply for wheat decreases • Equilibrium Price increases but Quantity change is ambiguous 7 AP Economics Mr. Bernstein Simultaneous Shifts of Supply and Demand Curves • Example: Demand for Country Music decreases but Supply increases • Equilibrium Price decreases but Quantity change is ambiguous 8 AP Economics Mr. Bernstein Simultaneous Shifts of Supply and Demand Curves • Example: Demand for snowboards increases and Supply increases • Equilibrium Price is ambiguous but Quantity change increases 9 AP Economics Mr. Bernstein Simultaneous Shifts of Supply and Demand Curves • Example: Demand for Justin Beiber tickets decreases and Supply decreases • Equilibrium Price is ambiguous but Quantity change decreases (awww…) 10