Avoiding Mistakes
If you follow the logical sequence listed you should be able to avoid
mistakes in analyzing changes in supply and demand.
-
Initial equilibrium. Draw the supply and demand curves labeling the
initial price and quantity.
-
Events and shifts. Analyze the event and ask yourself if it would
increase or decrease supply or demand if the price does not change.
-
Shortage or surplus? If the initial price does not change, will
there be a shortage or a surplus?
-
Draw the shortage or surplus.
-
New equilibrium. The new equilibrium will be where the new supply
and/or demand curves intersect.
