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Unformatted text preview: equilibrium price, the quantity demanded (10 cones) exceeds the quantity supplied (4 cones). With too many buyers chasing too few goods, suppliers can take advantage of the shortage by raising the price.
Hence, in both cases, the price adjustment moves the market toward the equilibrium of supply and demand. 2.4.2 Three Steps to Analyzing
Changes in Equilibrium
1. 2. 3. Decide whether the event shifts the supply or demand curve (or perhaps both).
Decide in which direction the curve shifts.
Use he supplyanddemand diagram to see how the shift changes the equilibrium price and quantity. Example: A Change in Demand
1. 2. 3. The hot weather affects the demand curve by changing people’s taste for ice cream. The supply curve is unchanged.
The demand curve shifts to the right. From D1 to D2, the quantity of ice cream demanded is higher at every price.
Increase in demand raises the equilibrium price from $2 to $2.5 and the equilibrium quantity from 7 to 10 cones. That is, the hot weather increase the price of ice cream and the quantity of ice cre...
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.
- Summer '11