EE&FA/C - SHIFT IN DEMAND AND SUPPLY CURVES - FINAL YEAR CS/3RD YEAR IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY, CHENNAI - Dr.K.BARANIDHARAN

1. Engineering
Economics &
Financial Accounting
Ee&fa
12 September 2013

2. Dr.K.Baranidharan
Present by…

3. SHIFT IN DEMAND AND SUPPLY
CURVES

4. 4 of 42
Supply Curve
Quantity
Price
70 9 11 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
As price rises, the
quantity supplied rises.
A supply curve shows
graphically how much of a
good or service people
are willing to sell at any
given price.
Supply
curve, S

5. 5 of 42
An Increase in Supply
A shift of the supply curve is a change in the quantity supplied of a good at any
given price.
70 9 11 13 15 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
S
1
S
2
Price of coffee
beans (per
pound)
Quantity
… is not the
same thing as a
shift of the
supply curve
A movement
along the supply
curve…

6. 6 of 42
Movement Along the Supply Curve
A movement along the supply curve is a change in the quantity supplied of a
good that is the result of a change in that good’s price.
70 10 11.2 12 15 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
S
1
S
2
A
C
B
Price
Quantity
… is not the
same thing as
a shift of the
supply curve
A movement
along the supply
curve…

7. 7 of 42
Any “increase in
supply” means a
rightward shift of the
supply curve: at any
given price, there is an
increase in the
quantity supplied.
(S1 S2)
Shifts of the Supply Curve
S
3
S
1
S
2
Price
Quantity
Decrease in
supply
Increase in
supply
Any “decrease in
supply” means a
leftward shift of the
supply curve: at any
given price, there is a
decrease in the
quantity supplied.
(S1 S3)

8. SHIFT IN DEMAND AND SUPPLY
CURVES
• Change in any of the
variables, other than price,
that influence demand or
supply will result in a shift in
the demand curve or the
supply curve or both.

9. A rise in demand(shift in the curve to
the right)
• An increase in demand result in shortage of a
commodity initially and existing equilibrium
condition is distributed.
• Unsatisfied buyers bid up the price and
producers, lured by profitability, increase the
supply.
• A new equilibrium will be attained where
more quantity will be exchanged at a higher
price.

11. A fall in demand (shift in the demand
curve to the left)
•A degrease in demand
leads to decrease in the
equilibrium price as
well as the equilibrium
quantity exchanged.

13. A rise in supply (shift in the supply
curve to the right)
•An increase in supply
results in a decrease in the
equilibrium price and
increase in the equilibrium
quantity exchanged.

14. Changes in supply can result from events like the following:
Change in production costs.
Improved technology that makes production more efficient.
Industry growth and shrinkage

15. (Economics) the economic
condition in which there is neither
excess demand nor excess supply
in a market

16. A fall in supply (shift in the supply
curve to the left)
• A decrease in supply result
in an increase in the
equilibrium price and
decrease in the equilibrium
quantity exchanged.

17. Simultaneous changes in both supply
and demand
• There is decrease in the
equilibrium price or an increase
therein and/or a decrease in the
equilibrium quantity or an
increase therein depends on the
extent of shift in the demand
and supply curves.

18. 18 of 42
Simultaneous Shifts of Supply and Demand
Two opposing forces
determining the
equilibrium quantity.
The increase in
demand dominates the
decrease in supply.
Quantity of coffeeQ2
Q
1
P
2
P
1
S
2
D
2
D
1
S
1
E
1
E
2
(a) One possible outcome: Price Rises, Quantity Rises
Price of coffee
Small decrease
in supply
Large increase
in demand

19. 19 of 42
Simultaneous Shifts of Supply and Demand
Two opposing forces
determining the
equilibrium quantity.
Q
1
Q
2
P
2
P
1
S
2
D
2
D
1
S
1
E
1
E
2
(b) Another Possibility Outcome: Price Rises, Quantity Falls
Price of coffee
Quantity of coffee
Large
decrease
in supply
Small increase
in demand

20. 20 of 42
Supply, Demand and Equilibrium
 Equilibrium in a competitive market: when the quantity
demanded of a good equals the quantity supplied of
that good.
 The price at which this takes place is the equilibrium
price (a.k.a. market-clearing price):
 Every buyer finds a seller and vice versa.
 The quantity of the good bought and sold at that price is the
equilibrium quantity.

21. 21 of 42
Market equilibrium
occurs at point E,
where the supply
curve and the demand
curve intersect.
Price
Quantity
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
E EquilibriumEquilibrium
price
Equilibrium
quantity
Market Equilibrium

22. 22 of 42
There is a surplus of a
good when the quantity
supplied exceeds the
quantity demanded.
Surpluses occur when
the price is above its
equilibrium level.
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
8.1 11.2
E
Surplus
Quantity
demanded
Quantity
supplied
Price
Quantity
Surplus

23. 23 of 42
70 10 1513 17
$2.00
1.75
1.50
1.25
1.00
0.75
0.50
Supply
Demand
9.1 11.5
E
Shortage
Quantity
demanded
Quantity
supplied
Price
Quantity
There is a shortage of a
good when the quantity
demanded exceeds the
quantity supplied.
Shortages occur when
the price is below its
equilibrium level.
Shortage

24. Dr.K.Baranidharan
THANK YOU