Table 4 - S&D Explanation

Table 4 - S&D Explanation - lead to increased price the...

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Federico Nusymowicz Table 4 Proving the several statements in Table 4 would require too many graphs; understanding these statement beyond simple memorization, however, requires common sense. When there’s no change in either supply or demands, naturally, Price (P), and Quantity (Q) stay the same. An increase or decrease in supply or demand, or a change in both, however, can produce more complicated to understand results. An increase in supply and no change in demand would increase Q (as supply is greater), but at the same time would decrease P, as the market moves toward equilibrium. If demand increases but supply remains unchanged, however, both Q and P would increase, as the sellers adjust to the market’s demands. An increase in both supply and demand, naturally, would lead to an increase Q sold, as the market’s point of equilibrium demands. Whether or not P increases, however, depends on whether supply or demand increased more than the other; in other words, it’s ambiguous. Likewise, a decrease in supply combined with an increase in demand would
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Unformatted text preview: lead to increased price; the quantity sold, however, would remain ambiguous, depending on the magnitude of the change of both supply and demand. A decrease in demand and no change on the supply side can only lead to one simple conclusion: a decrease in both P and Q. A decrease in demand combined with an increase in supply will drive the price down, as the two lines would meet at a lower point, since they’d be shifted towards each other; whether quantity sold would increase or decrease remains ambiguous, depending on the degree of shift on both the supply and the demand side. The final scenario would be a decrease in both supply and demand. This event would definitely drive the quantity sold down; the price remains ambiguous though, since the point of equilibrium could lead sellers to push for higher prices, depending on the magnitude of the shifts of both supply and demand relative to each other....
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This note was uploaded on 06/26/2008 for the course ECON S-10ab taught by Professor Medoff during the Summer '07 term at Harvard.

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