Introduction

Watch the following video clip on an increase in demand and a decrease in supply:

Activity

Do the activity below to see if you can explain what happens to the equilibrium price and equilibrium price if demand increases and supply decreases. Before you attempt this activity, make sure you know what happens to the price and quantity if demand increases or supply decreases.

A crop failure causes the supply of coffee to decline, while at the same time, the demand for coffee increases. What impact would these events have on the market for coffee?

  1. There would be a(n) (decrease in demand, increase in demand, increase in supply, decrease in supply).
  2. The supply curve would shift to the (right, left).
  3. The demand curve would shift to the (right, left).
  4. The equilibrium price would (increase, decrease).
  5. The equilibrium quantity would (increase, decrease) if the demand curve were to shift more than the supply curve.
  6. The equilibrium quantity would (increase, decrease) if the demand curve were to shift less than the supply curve.
Click to see the answer

a. There would be an increase in demand and a decrease in supply.
b. The supply curve would shift to the left.
c. The demand curve would shift to the right.
d. The equilibrium price would increase.
e. The equilibrium quantity would increase if the demand curve were to shift more than the supply curve.

f. The equilibrium quantity would decrease if the demand curve were to shift less than the supply curve.