blanchard_ch03

When demand increases the demand curve shifts

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Unformatted text preview: the quantity supplied increases to 15 million energy bars a week, as highlighted in the figure. There is an increase in the quantity supplied but no change in supply—a movement along, but no shift of, the supply curve. A Decrease in Demand We can reverse this change in demand. Start at a price of $2.50 a bar with 15 million energy bars a week being bought and sold, and then work out what happens if demand decreases to its original level. Such a decrease in demand might arise if people switch to energy gel (a substitute for energy bars). The decrease in demand shifts the demand curve leftward. The equilibrium price falls to $1.50 a bar, and the equilibrium quantity decreases to 10 million bars a week. Demand for energy bars (new) 1.00 0.50 0 Demand for energy bars (original) 5 10 15 25 30 20 35 Quantity (millions of bars per week) Quantity demanded Price (millions of bars per week) Quantity supplied (dollars per bar) Original New (millions of bars per week) 0.50 22 32 1.00 15 25 6 1.50 10 20 10 2.00 7 17 13 2.50 5 15 15 0 Initially, the demand for energy bars is the blue demand curve. The equilibrium price is $1.50 a bar, and the equilibrium quantity is 10 million bars a week. When more healthconscious people do more exercise, the demand for energy bars increases and the demand curve shifts rightward to become the red curve. At $1.50 a bar, there is now a shortage of 10 million bars a week. The price of a bar rises to a new equilibrium of $2.50. As the price rises to $2.50, the quantity supplied increases—shown by the blue arrow on the supply curve—to the new equilibrium quantity of 15 million bars a week. Following an increase in demand, the quantity supplied increases but supply does not change—the supply curve does not shift. animation 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 67 Predicting Changes in Price and Quantity We can now make our first two predictions: An Increase in Supply When Nestlé (the producer of PowerBar) and other energy bar producers switch to a new cost-saving technology, the supply of energy bars increases. Figure 3.9 shows the new supply schedule (the same one that was shown in Fig. 3.5). What are the new equilibrium price and quantity? The price...
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