Changes in equilibrium price and quantity when supply and demand change | Khan Academy
Understanding Supply and Demand Curves
Introduction to Supply and Demand Curves
- The video discusses various ways supply and demand curves can shift, illustrated through eight versions of the same diagram focused on the ice cream market.
- The vertical axis represents price (P), while the horizontal axis represents quantity (Q). The initial supply curve is labeled S1, and the demand curve is labeled D1.
Equilibrium Price and Quantity
- The intersection of supply curve S1 and demand curve D1 determines equilibrium price (P1) and equilibrium quantity (Q1). Proper labeling is emphasized for clarity in standardized tests.
Effects of Supply Shifts
Increase in Supply
- A scenario where a major ice cream producer enters the market leads to an increase in supply.
- This results in a rightward shift of the supply curve to S2, causing equilibrium price (P2) to decrease while equilibrium quantity (Q2) increases.
Decrease in Supply
- Conversely, if supply decreases due to some producers exiting the market, this shifts the supply curve leftward.
- In this case, equilibrium price rises while equilibrium quantity falls as fewer suppliers are available.
Effects of Demand Shifts
Increase in Demand
- An increase in demand could occur if new health reports suggest ice cream is healthier than previously thought.
- This causes a rightward shift of the demand curve to D2, resulting in both higher equilibrium price (P2) and higher equilibrium quantity (Q2).
Decrease in Demand
- If studies reveal that ice cream is unhealthier than expected, demand would decrease.