Page 5 - Home Assignment-Price determination

 Due to increase in demand the demand curve shifts right ward

resulting an excess demand situation in the market by EF.
 In order to overcome the excess demand situation, the price level
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will increase it will lead to expansion in supply from E to and
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contraction in demand from F to .
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 Finally, the equilibrium price and quantity will increase to
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and respectively.

Case: - 2

Supply remaining constant with the decrease in demand both the
equilibrium price and quantity will fall.

Y
Pri S
ce F E

P
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D

O Q Quantity demanded X
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and quantity supplied

 In the above diagram the equilibrium price ‘OP’ and quantity ‘OQ’
is determined at point ‘E’ where market demand = market supply.

 Due to decrease in demand the demand curve shifts left ward to
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resulting an excess supply situation in the market by EF.
 In order to overcome the excess supply situation, the price level
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will fall, it will lead to contraction in supply from E to and
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expansion in demand from F to .
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 Finally, the equilibrium price and quantity will decrease to
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and respectively.
Impact of change in supply on equilibrium price and quantity, demand
remaining constant.

Case-1

Demand remaining constant with the decrease in supply the
equilibrium price will rise but the quantity will fall.