When the decrease in demand is greater than the increase in supply, the relative shift of demand curve is proportionately more than the supply curve. Effectively, both the equilibrium quantity and price fall.
As style and the desire to consume certain items increases or decreases, it will cause a shift in the demand curve. For example, drinks that have a lot of sugar became less desirable in recent years. That means the taste and the preference of consumers have changed.
Here, the key lesson is that a shift of the aggregate demand curve to the right leads to a greater real GDP and to upward pressure on the price level. Conversely, a shift of aggregate demand to the left leads to a lower real GDP and a lower price level.
The readings introduce what causes shifts in the AD curve, particularly changes in the behavior of consumers or firms and changes in government tax or spending policy. We'll also discuss two of the most important factors that can lead to shifts in the AS curve: productivity growth and changes in input prices.
When the supply decreases, accompanied by no change in demand, there is a leftward shift of the supply curve. As supply decreases, a condition of excess demand is created at the old equilibrium level. Effectively there is increased competition among the buyers, which obviously leads to a rise in the price.
When the decrease in demand is greater than the decrease in supply, the demand curve shifts more towards left relative to the supply curve. Effectively, there is a fall in both equilibrium quantity and price. The decrease in demand < decrease in supply.
The decrease in demand = decrease in supply. When the magnitudes of the decrease in both demand and supply are equal, it leads to a proportionate shift of both demand and supply curve. Consequently, the equilibrium price remains the same but there is a decrease in the equilibrium quantity.
This condition translates to the fact that the demand curve shifts leftwards whereas the supply curve shifts rightwards. As they move in opposite directions, the final market conditions are deduced by pointing out the magnitude of their shifts. Here, three cases further arise which are as follows:
Of course, as price increases, it serves as an incentive for suppliers to increase supply and also leads to a fall in demand. It is important to realize that these processes continue to operate until a new equilibrium is established. Effectively, there is an increase in both the equilibrium price and quantity.
When there is an increase in demand, with no change in supply, the demand curve tends to shift rightwards. As the demand increases, a condition of excess demand occurs at the old equilibrium price. This leads to an increase in competition among the buyers, which in turn pushes up the price.
The demand for a product changes due to an alteration in any of the following factors: 1 Price of complementary goods 2 Price of substitute goods 3 Income 4 Tastes and preferences 5 An expectation of change in the price in future 6 Population