Suppose the market for good x is in equilibrium. Explain the chain effect if increase in market demand is less than the decrease in market supply
Answers
There is a four-step process that allows us to predict how an event will affect the equilibrium price and quantity using the supply and demand framework.
-Step one of this process is to draw a demand and supply model representing the situation before the economic event took place.
-Step two of this process is to decide whether the economic event being analyzed affects demand or supply.
-Step three of this process is to decide whether the effect on demand or supply causes the curve to shift to the right or to the left and to sketch the new demand or supply curve on the diagram.
-Step four of this process is to identify the new equilibrium and then compare the original equilibrium price and quantity to the new equilibrium price and quantity.
There are different steps involved in the system to measure the affect of an event that can stress on the equilibrium price.
Firstly, you need to sketch the demand and supply model representing the situation before even tool place.
Secondly, you have to analyze the affects of demand and supply of that particular economic event.
Thirdly, you must prepare the curve sheets of the demand and supply of that economic event.
Lastly, you must compare the original equilibrium price with the latest price.