Demand, Supply, and Equilibrium

Here you will understand the relationship between money markets and interest rates. You will also come to learn how real GDP has an effect on the demand for money. What effect does interest rate have on the demand for money?

Shifts in Demand and Supply

An Increase in Supply

An increase in the supply of coffee shifts the supply curve to the right, as shown in Panel (c) of Figure 3.10 "Changes in Demand and Supply". The equilibrium price falls to $5 per pound. As the price falls to the new equilibrium level, the quantity of coffee demanded increases to 30 million pounds of coffee per month. Notice that the demand curve does not shift; rather, there is movement along the demand curve.

Possible supply shifters that could increase supply include a reduction in the price of an input such as labor, a decline in the returns available from alternative uses of the inputs that produce coffee, an improvement in the technology of coffee production, good weather, and an increase in the number of coffee-producing firms.