Demand, Supply, and Equilibrium

Read this section to learn how demand and supply interact with one another to determine prices and quantities that may or may not be optimal. Attempt the "Try It" problem. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Answer To Try It Problem

An increase in the price of movie theater tickets (a substitute for DVD rentals) will cause the demand curve for DVD rentals to shift to the right. An increase in the wages paid to DVD rental store clerks (an increase in the cost of a factor of production) shifts the supply curve to the left. Each event taken separately causes equilibrium price to rise. Whether equilibrium quantity will be higher or lower depends on which curve shifted more.

If the demand curve shifted more, then the equilibrium quantity of DVD rentals will rise [Panel (a)].

If the supply curve shifted more, then the equilibrium quantity of DVD rentals will fall [Panel (b)].

If the curves shifted by the same amount, then the equilibrium quantity of DVD rentals would not change [Panel (c)].