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Principles of Economics- Mankiw (5th) 82

# Principles of Economics- Mankiw (5th) 82 - 1 1 2 2 1 2 2 1...

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86 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK Summary We have just seen three examples of how to use supply and demand curves to analyze a change in equilibrium. Whenever an event shifts the supply curve, the demand curve, or perhaps both curves, you can use these tools to predict how the event will alter the amount sold in equilibrium and the price at which the (b) Price Rises, Quantity Falls Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 New equilibrium Initial equilibrium S 1 D 1 2 2 Q 1 2 P 2 1 (a) Price Rises, Quantity Rises Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 New equilibrium Initial equilibrium
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Unformatted text preview: 1 1 2 2 1 2 2 1 Large increase in demand Small decrease in supply Small increase in demand Large decrease in supply Figure 4-12 A S HIFT IN B OTH S UPPLY AND D EMAND . Here we observe a simultaneous increase in demand and decrease in supply. Two outcomes are possible. In panel (a), the equilibrium price rises from P 1 to P 2 , and the equilibrium quantity rises from Q 1 to Q 2 . In panel (b), the equilibrium price again rises from P 1 to P 2 , but the equilibrium quantity falls from Q 1 to Q 2 ....
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