Principles of Economics- Mankiw (5th) 81

Principles of Economics- Mankiw (5th) 81 - CHAPTER 4 T H E...

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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 85 3. As Figure 4-11 shows, the shift in the supply curve raises the equilibrium price from $2.00 to $2.50 and lowers the equilibrium quantity from 7 to 4 cones. As a result of the earthquake, the price of ice cream rises, and the quantity of ice cream sold falls. Example: A Change in Both Supply and Demand Now suppose that the hot weather and the earthquake occur at the same time. To analyze this combination of events, we again follow our three steps. 1. We determine that both curves must shift. The hot weather affects the demand curve because it alters the amount of ice cream that households want to buy at any given price. At the same time, the earthquake alters the supply curve because it changes the amount of ice cream that firms want to sell at any given price. 2. The curves shift in the same directions as they did in our previous analysis: The demand curve shifts to the right, and the supply curve shifts to the left.
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