blanchard_ch03

# Change in demand with no change in supply the first

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Unformatted text preview: price and quantity increase. And with a decrease in demand and no change in supply in part (c), both the price and the quantity decrease. Change in Supply with No Change in Demand The first column of Fig. 3.10, parts (a), (d), and (g), summarizes the effects of a change in supply with no change in demand. With an increase in supply and no change in demand in part (d), the price falls and quantity increases. And with a decrease in supply and no change in demand in part (g), the price rises and the quantity decreases. Increase in Both Demand and Supply You’ve seen that an increase in demand raises the price and increases the quantity. And you’ve seen that an increase in supply lowers the price and increases the quantity. Fig. 3.10(e) combines these two changes. Because either an increase in demand or an increase in supply increases the quantity, the quantity also increases when both demand and supply increase. But the effect on the price is uncertain. An increase in demand raises the price and an increase in supply lowers the price, so we can’t say whether the price will rise or fall when both demand and supply increase. We need to know the magnitudes of the changes in demand and supply to predict the effects on price. In the example in Fig. 3.10(e), the price does not change. But notice that if demand increases by slightly more than the amount shown in the figure, the price will rise. And if supply increases by slightly more than the amount shown in the figure, the price will fall. 71 Decrease in Both Demand and Supply Figure 3.10(i) shows the case in which demand and supply both decrease. For the same reasons as those we’ve just reviewed, when both demand and supply decrease, the quantity decreases, and again the direction of the price change is uncertain. Decrease in Demand and Increase in Supply You’ve seen that a decrease in demand lowers the price and decreases the quantity. And you’ve seen that an increase in supply lowers the price and increases the quantity. Fig. 3.10(f ) combines these two changes. Both the decrease in demand and the increase in supply lower the price,...
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## This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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