ECON 1580-01 Learning Journal Week 2

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May 21, 2024

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University of the People ECON 1508 - 01: Introduction to Economics Instructor Getachew Woldie Written Assignment – Unit 1 February 11, 2024

Introduction In economics, the interaction of supply and demand in a market plays a fundamental role in determining the equilibrium price and quantity of a good or service. Understanding how changes in supply and demand affect market outcomes is crucial for analyzing various economic scenarios. In this discussion, we will explore how changes in supply and demand individually impact the equilibrium price and quantity in a supply-demand graph. Scenario Analysis: Impact of Changes in Supply and Demand a) Only supply decreases: When there is a decrease in supply, represented by a leftward shift of the supply curve, the equilibrium price increases, and the equilibrium quantity decreases. This occurs because, with less supply available at all price levels, the market equilibrium shifts to a higher price point where the quantity supplied equals the quantity demanded. As a result, consumers are willing to pay more for the limited quantity available, leading to a higher equilibrium price, while the reduced quantity supplied results in a lower equilibrium quantity. According to Gregory (2019), a decrease in supply shifts the supply curve to the left, leading to higher prices and lower quantities demanded.

b) Only supply increases: Conversely, when there is an increase in supply, represented by a rightward shift of the supply curve, the equilibrium price decreases, and the equilibrium quantity increases. With more supply available at all price levels, the market equilibrium shifts to a lower price point where the quantity supplied equals the quantity demanded. As a result, consumers can purchase the good at a lower price, leading to a lower equilibrium price, while the increased quantity supplied results in a higher equilibrium quantity. Mankiw (2014) explains that an increase in supply shifts the supply curve to the right, resulting in lower prices and higher quantities demanded. c) Only demand increases: When there is an increase in demand, represented by a rightward shift of the demand curve, the equilibrium price and quantity both increase. With higher demand at all price levels, the market equilibrium shifts to a higher price point where the quantity supplied equals the quantity demanded. As a result, consumers are willing to pay more for the greater quantity demanded, leading to a higher equilibrium price. In contrast, the increased quantity demanded results in a higher equilibrium quantity. Rittenberg and Tregarthen (2009) describe that an increase in demand shifts the demand curve to the right, causing higher prices and quantities demanded. d) Only demand decreases: Conversely, when there is a decrease in demand, represented by a leftward shift of the demand curve, the equilibrium price and quantity decrease. With lower demand at all

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price levels, the market equilibrium shifts to a lower price point where the quantity supplied equals the quantity demanded. As a result, consumers are willing to pay less for the reduced quantity demanded, leading to a lower equilibrium price. In contrast, the decreased quantity demanded results in a lower equilibrium quantity. According to Gregory (2019), a decrease in demand shifts the demand curve to the left, causing lower prices and quantities demanded. Conclusion In conclusion, changes in supply and demand individually affect the equilibrium price and quantity in a supply-demand graph. Understanding these effects is essential for analyzing market dynamics and predicting how changes in various factors influence market outcomes. Word count: 548

References: Gregory, M. N. (2019). Principles of Economics . Open Textbook Library. https://open.umn.edu/opentextbooks/textbooks/32 Mankiw, N. G. (2014). Principles of microeconomics, 8th edition - 9781305971493 - cengage . Cengage. https://www.cengage.com/c/principles-of-microeconomics-8e-mankiw/9781305971493 Rittenberg, L., & Tregarthen, T. (2009). Chapter 3: Demand and Supply . University of the People. https://my.uopeople.edu/pluginfile.php/57436/mod_book/chapter/37368/ BUS2201.Textbook.Principles.of.Marketing.pdf

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