Demand and Supply shifts in a nutshell

 Hello all!!

Today I am going to teach you an important topic "Demand & Supply" from Economics and everyone can learn it with much ease than from any other resource available.

The Equilibrium Price here is 550.

Above, is the demand and supply schedule. Let's understand the laws of demand and supply:

Law 1. When price is high, demand is low ; price is low, demand is high.

Law 2. When price is high, supply is high; price is low, supply is low.

In the above graph, the point where Demand and Supply intersects is the point where Demand = Supply, and it also gives the Equilibrium Price and Equilibrium Quantity.

(The Price line is hidden and moving along with Supply because when the price rises, supply also rises)

When the Demand rises: Demand supply curve shifts to the right; price and quantity increase like below. 

The above graph indicates that it did shift to the right, the price increased and quantity increased without changing Price and Supply inputs.

When Demand falls: Demand curve shifts to the left; both price and quantity falls like below. 

When Supply rises: Supply curve shifts to the right; price falls and quantity increases like below.

When the Supply falls: Supply curve shifts to the right; price increases and quantity decreases like below.

When Demand increases and Supply decreases: Equilibrium Price will change and quantity will increase like below.

When the government puts a Price ceiling on products and restricts output demand to 500 Units, Supply to 500 Units and sets price to slightly above Equilibrium price of 550, say 600, the Demand gradually drops and a loss occurs due to over supply. 

Similarly, if the government sets the product price to 500, slightly lower to the equilibrium price, the demand will grow but not the price nor supply because of price ceiling. This is not an acceptable market law and buyers will not offer more price to buy a scarce product nor sellers can't lower the price to sell more units because there is no supply above 500. 

This simulation also helps us to prove:

Demand Pull Inflation: When aggregate demand increases, the price rises with increased supply

Cost Push Inflation: When aggregate supply falls, the price rises due to wage-push, profit-push and supply shock inflation

Analysis: The Demand-Supply figures may be used from a forecast to forecast an Equilibrium Price and Quantity.    

However, we are always at a flaw here and that is wasting demand. Furthermore, if we try increase supply, a loss occurs. Hence, from the above we can understand that it is always better to maintain an

Equilibrium Price where Demand = Supply   

View Excel version and try your own numbers here  

Happy New year 2022