price. This rise in price causes a larger quantity to be supplied,
with the result that at the new equilibrium more is exchanged at a
higher price.
2. A DECREASE IN DEMAND (THE DEMAND CURVE SHIFTS
TO THE LEFT). A decrease in demand creates a surplus at the
initial equilibrium price, and the unsuccessful sellers bid the
down. As a result, less of the product is supplied and offered for
sale. At the new equilibrium, both price and quantity exchanged
are lower than they were originally.
3. AN INCREASE IN SUPPLY (THE SUPPLY CURVE SHIFTS TO
THE RIGHT). An increase in supply creates a surplus at the initial
equilibrium price, and the unsuccessful suppliers force the price
down. This drop in price increases the quantity demanded, and
the new equilibrium is at a lower price and a higher quantity
exchanged.
4. A DECREASE IN SUPPLY (THE SUPPLY CURVE SHIFTS TO
THE LEFT). A decrease in supply creates a shortage at the initial
equilibrium price that causes the price to be bid up. This rise in
price reduces the quantity demanded, and the new equilibrium is
at a higher price and a lower quantity exchanged.Note that in each of these four examples, a change in some exogenous
variable has caused one of the curves to shift, and then in response to this
shift, there has been a movement along the other curve toward the new
equilibrium point. Both endogenous variables, price and quantity, adjust
in response to the change in the exogenous variable.