A graph showing a market in equilibrium with a market clearing price at P and quantity at Q
A graph that depicts the condition of excess demand in the market for electric scooters
A graph that depicts the condition of excess supply in the market for Covid-19 face masks during the later stages of the pandemic
Diagram showing an increase in demand for desks due to a temporary change in tastes/fashions
Diagram showing an decrease in supply of wheat in India due to a supply shock caused by the war in Ukraine
Diagram showing a decrease in demand for lobsters due to a decrease in real income
Diagram showing an increase in supply of solar panels in the EU due to a per unit subsidy
MCQ, short answer and essay questions frequently require you to explain dynamic changes in markets. Explaining the steps in the change is often referred to as chains of analysis and students frequently leave out some steps in the chain.
Step 1: From the scenario, identify if the change in condition is on the demand side or supply side.
Step2: State which way the demand or supply curve moves and use notation e.g. S1→S2.
Step 3: State the disequilibrium that now exists at the original market price.
Step 4: State if sellers raise or lower prices to clear the disequilibrium.
Step 5: Explain the relevant contraction and extension that occurs on the demand and supply curves due to the change in price.
Step 6: State the new market equilibrium points e.g. P2Q2.
Step 7: Explain the market outcome (is the new price/quantity higher/lower than the original?)