Answer:
See explanation!
Explanation:
To answer this question, let's first understand what would happen to prices if either supply or demand remained constant, whilst the other changed.
<em>If supply remains constant,</em> an increase in demand will result in higher prices. On the contrary, a decrease in demand will result in lower prices.
<em>If demand remains constant, </em>an increase in supply will result in lower prices, while a decrease in supply will result in higher prices.
<u>This may make sense with a scenario:</u>
All resources are scarce, so let's say a seller has one chair, and has one buyer. The chair would likely be sold for a pretty low price. However, if the next day, the seller still only had one chair, and this time had, say, 10 buyers, the chair would likely go much higher. This is because the seller now has more power, and the chair would be going to whoever is willing to pay the most, which likely isn't that original buyer.
On the other hand, if there were three buyer, and only one seller, the chair would have gone for a pretty average price. However, if there were the same three buyers with 10 sellers instead, each seller would have a lot less bargaining power, be forced to compete with each other, and hence sell the chairs at a much lower price.
<u>This relationship may be better displayed with a graphical approach.</u>
It's important to remember that in a basic supply and demand graph, the output is on the x-axis and price will be on the y-axis.
Demand will always be downward sloping, whilst supply will always be upward sloping.
The intersection of the two lines will be market equilibrium.
An increase in demand or supply can be modeled with a shift of the curves, in which you can play around and see what will happen to the market equilibrium of price.
An increase in demand will result in a rightward shift of the curve (more output at a given price) while a decrease creates a leftward shift. (less output at a given price)
An increase in supply is a rightward shift as well (more output at a given price) while a decrease is a leftward shift. (less output at a given price)
I hope that makes sense, please let me know if you have any questions!
<u>Keywords:</u>
Demand
Supply
Prices
Equilibrium
Law of Demand
<u>Learn more about supply, demand, and equilibrium:</u>
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