Statistics of Supply and Demand

Equilibrium is determined by the interaction of given supply and demand curves. But what about changes in supply and demand? Such changes can be interpreted as shifts of the supply, curve, of the demand curve, or both at once.

Perhaps as a result of altered preferences, buyers suddenly want to continue more of some good at each possible price. This is called an increase of demand. The basic technique in analyzing some economic change will be to ask: Is the change reflected in a shift of supply, or a shift of demand (or possibly, of both)? It will be immediately evident that an increase in demand alone leads to an increase in both equilibrium price and equilibrium quantity. An increase in supply leads to an increase in equilibrium quantity, but to a decrease in equilibrium price.

It is sometimes useful to distinguish between those sources of change originating “outside” and those originating “inside” the economic system. The “outside” sources of variation include” 1) Changes in tastes, 2) changes in technology, changes in resources, and 3) changes in resources, and 4) changes in the political-legal system. All these changes can be regarded, in some degree at least, as originating autonomously rather than in response to economic factors.

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