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## Macroeconomics

### Course: Macroeconomics > Unit 1

Lesson 6: Markets- Market equilibrium
- Changes in market equilibrium
- Changes in equilibrium price and quantity when supply and demand change
- Lesson summary: Market equilibrium, disequilibrium, and changes in equilibrium
- Market equilibrium and disequilibrium
- Changes in equilibrium

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# Changes in equilibrium price and quantity when supply and demand change

Previously we looked at what happens to the equilibrium price and quantity in a market if supply or demand change. In this video, we explore what happens when BOTH supply and demand are changing at the same time.

## Want to join the conversation?

- Where can I find the other half of the video?(14 votes)
- Someone at Khan please also add the other half of the video as a lesson.

Right now it the lesson is titled: Changes in equilibrium price and quantity when supply and demand change

--- for the video --- Equilibrium price and quantity from changes in both supply and demand

and the second video (which is called as the title) is missing. Ty, much love :)(7 votes)- here it is, not a lesson on Khan Academy but it's the video: https://youtu.be/UQVwgC7MAHM(12 votes)

- There is a problem with the video; I can only view half of it.(8 votes)
- https://youtu.be/UQVwgC7MAHM here's the rest if you happened to need it (someone else posted it above though)(6 votes)

- Everyone else wanting the other half, I'm just tryna get done(3 votes)
- For the first graph, wouldn't the demand curve shift down for the ice-cream because there is a better ice-cream being launched there? and the supply curve increased because they will supply as much as they can at any price to maintain their position in the market is that correct?

Please answer me I have a test today(1 vote)- No, in the first graph supply is increasing because there is a new firm entering the market. The number of firms in a market is a determinant of supply, not demand.(3 votes)

- 10.) Mad cow disease struck the United States thus limiting the amount of dairy cows that we had access to.(1 vote)
- Calculate the equilibrium quantity and price if the quantity supplied can be represented by the equation Qs = 18 000 + 0.2P and the quantity demanded can be represented by the equation Qd = 2 400 – 0.1P.(1 vote)
- At2:16, he mentions that a downward-sloping demand curve is typical, which implies that there are situation where that isn't the case. What could one of those situations be?(1 vote)
- Type "awesome" while watching the progress bar.(1 vote)
- It was my understanding that demand has an inverse relationship with price-quantity, while supply has a direct one with price-quantity. Why is this not the case?(1 vote)
- Demand generally decreases with higher prices, while supply generally increases with higher prices, creating the inverse and direct relationships you mentioned.(1 vote)

## Video transcript

- [Instructor] What we're going to do in this video is think about
all of the different ways that a supply curve or
a demand curve can shift and that's why we actually
have eight versions of the exact same diagram. Each of them is showing where we are right now,
let's say in a given region in the ice cream market. It's important to title your graphs, especially if you were taking some type of a standardized exam like an AP exam and in the vertical axis we have P representing price, and then the horizontal axis,
Q representing quantity, we have our upwards sloping supply curve. I'm calling this S1 just as
kind of our starting point and then we have our downwards
sloping demand curve, D1 and where they intersect, that gives us our equilibrium price, P1 and our equilibrium quantity, Q1 and once again, if you were taking some type of a standardized test, it's important that you
label all of these things including P1 and Q1 and show this dotted line where it intersects the horizontal axis, this is Q1 and where it
intersects the vertical axis, it is P1. Now with that out of the way, let's think about what happens
to the equilibrium price and the equilibrium quantity given different shifts in the supply or the demand curve or both of them. So, in this first scenario, let's imagine that all of a sudden a major ice cream producer enters into the market, so here we're going to this first one, we're gonna think about a situation where the supply goes up. So, one way to think about it is at any given price, people are willing to
supply more quantity, so here we would have our
supply curve shift to the right, I'll call this S2 right over here, it's shifting to the right and down and so, given this, what happens to our equilibrium price and our equilibrium quantity? Well, you see it right over here. If I draw a dotted line, we see our equilibrium price P2 is lower and our equilibrium quantity Q2 is higher, once again, assuming that we have a downwards sloping demand curve like this which is what you would typically see and so, in this case, let me just write it here, we have our quantity, actually, let me write it this way, we have our price goes down and our quantity goes up. All right, now let's do this example and let's imagine the other way, let's imagine in this scenario our supply goes down. What is going to happen to this graph and in particular, what's going to happen to our equilibrium price and
our equilibrium quantity? Well, in this situation for a given price people are willing to supply less, that's how I would like to think about it, so we would have a shift to the left and up and so, we could
call this supply curve two right over here and that what
is our equilibrium point? It's right over there and so, this would be our new price, it has gone up and this would be our new quantity, it has gone down, so price has gone up and quantity has gone down and once again, in
either of these scenarios hopefully this feels a
little bit like commonsense. If you have a supplier
enter into the market, quantity might go up and there's more competition and so, a lot more suppliers and so, the price would go down. Here where the supply goes down, maybe some of the ice
cream stores close down, well, now the quantity will go down, there's just less people supplying but the price goes up. For the ice cream that's there, the equilibrium price
is going to be higher. Now let's do the same thing
with the demand curve. Let's think about a situation where first let's think about a scenario where demand goes up. What is going to happen in this world? Well, demand might go up because maybe there's some type of report that ice cream is much healthier for you than expected and so, at a given price, people are willing to
demand a higher quantity, so for example, at that price, people would demand a higher quantity and so, we would have a
shift to the right and up, let's call this D2 right over here and this is our new equilibrium point and then notice what
has just happened here. At our new equilibrium point, this is Q2 and then this right over here is P2, our new equilibrium price or our new equilibrium quantity. In this situation where demand goes up, both price and quantity are going to go up assuming we have this upwards
sloping supply curve again. And once again, that makes sense. More people just wanna buy ice cream, the supply curve dynamics
have not changed, so we're gonna move
along that supply curve to the right and up, so both price and quantity go up. Well, if demand goes down, you could imagine the
opposite is going to happen. So, here if we have demand goes down, let's say a big study comes out that ice cream is even unhealthier than we originally thought, well, then at a given price, people are going to want, they're going to demand less ice cream and so, our demand curve
would shift to the left and down, so we'll call
this D2 right over here and then we can see our
equilibrium price and quantity, so let's show that new equilibrium price is P2 right over here and then our new
equilibrium quantity is Q2 and notice, both price
and quantity go down. People just don't wanna
buy ice cream as much because they think it's unhealthy now, so price goes down and quantity goes down.