2013_ch04_lecture_Demand and Supply
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4.3 MARKET EQUILIBRIUM
The figure shows the effects of an increase in demand and a decrease in supply.
An increase in demand shifts the demand curve rightward; a decrease in supply shifts the supply curve leftward.
1.Equilibrium price rises.
2.Equilibrium quantity might increase, decrease, or not change.
4.3 MARKET EQUILIBRIUM
This figure shows the effects of a decrease in demand and an increase in supply.
A decrease in demand shifts the demand curve leftward; an increase in supply shifts the supply curve rightward.
1.Equilibrium price falls.
2.Equilibrium quantity might increase, decrease, or not change.
EYE on HOME PRICES
Why Did Home Prices Boom and Bust?
In 1999, the price of an average home was $200,000, but home prices were rising by almost 10 percent a year.
The pace of increase picked up and by 2004, home prices were rising by 15 percent a year.
What caused this boom in home prices?
4.3 MARKET EQUILIBRIUM
Increase in Demand and Decrease in Supply
•Raises the equilibrium price.
•The change in the equilibrium quantity is ambiguous because the:
Increase in demand increases the quantity.
Decrease in supply decreases the quantity.
4.3 MARKET EQUILIBRIUM
Decrease in Demand and Increase in Supply
•Lowers the equilibrium price.
•The change in the equilibrium quantity is ambiguous because the:
Decrease in demand decreases the quantity.
Increase in supply increases the quantity.
EYE on HOME PRICES
Why Did Home Prices Boom and Bust?
1.Cheap and easy loans increased the demand for homes.
2.With house prices expected to rise further the supply of homes for sale decreased.
3.Home prices soared.
In 2006, home prices started to fall. What caused home prices to fall?
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EYE on HOME PRICES
Why Did Home Prices Boom and Bust?
1.Cheap and easy loans dried up the demand for homes.
2.With house prices expected to fall the supply of homes for sale increased.
3.Home prices fell.
By 2009, the average home price had fallen to 54 percent of the 2006 peak value.
Thanks for your attention
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