Effect on the Equilibrium Price and Quantity
When Conditions of Demand Changed (With Supply Unchanged)
If there is a amend in the condition of demand which cause the demand curve to shift to the left, there will be a new equilibrium price and quantity as shown in diagram (i) below.
When Conditions of Supply Changed (With Demand Unchanged)
If there is a change in the condition of supply which cause it to shift to the left, this will result in the new equilibrium price and quantity as shown in the diagram drawn (ii) above.
When Both Conditions of Demand and Supply are changed
If there are changes in conditions of demand and supply both, then the equilibrium price and quantity can only be determined provided we know that:
- The directions of the shift left or right
- The magnitude/distance of the shift
- The elasticity which is slope of demand and supply curves both
When Government Imposes an Indirect Tax
The imposition of an indirect tax will decrease the amount which firms are prepared to supply at every different price level. The effects are shown below.
Qty. supplied before tax
Qty. supplied after tax
When Government Provides Subsidy to Producers
Subsidy is a form of aid which will decrease the cost of production and therefore will increase the supply of the good or service at each different cost level. The effects these are given below.
Qty. supplied before subsidy
Qty. supplied after subsidy
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