Running head: ECONOMIC ANALYSIS

Differences between Movement along and Shift of the Demand Curve In economics, the baseline principle is understanding the role of supply and demand in consumer markets. As illustrated in this paper, there will be discussion on how the demand curve moves and shifts as part of supply and equilibrium price impacts it. Movement along is representation of the effect of a change in price on quantity demand (Colander, 2008). For example, if a company during a holiday has a large demand on boots at a certain price, the price and quantity available will increase because its in higher demand from the consumer. A shift in demand is a representation of the effect of anything other than price (Colander, 2008). An example of this would be if a person said that ice cream could cure an illness and as a result, people would pursue the purchase of the ice cream, regardless of the price. The differences in the movement along and shift of the demand curve become clearer: one is indicative of the change in price based on the quantity and one is predicated on everything or anything other than price. Impacts on Equilibrium Price and Quantity As illustrated by Varian (1992), economic equilibrium is a state in which economic forces attempt to balance in the absence of other economic variables that will not change; the main goal is to balance the quantity of demand and supply so that they are equal. Equilibrium price, as Colander (2008) defines, then becomes the price that is used for the goods or services for buyers/consumers that will not change unless demand or supply changes. When this relationship between supply and demand is out of balance, disequilibrium occurs which results in shortages or oversupply. The following paragraph will provide details as to what would happen to equilibrium price if: (A) there is an increase in demand; (B) there is an increase in supply; and (C) if there is an increase in supply and demand.

Running head: ECONOMIC ANALYSIS

(A) When there becomes an increase in demand, the equilibrium price of that item/good or service increases as well as the quantity supplied in order to maintain balance. If there is an increase and the price and supply do not match this increase, then disequilibrium occurs and a shortage results. When there is a shortage, the way in which to correct this disequilibrium is to increase the price which will decrease the quantity demanded. (B) When there becomes an increase in supply and there is no change in the demand, it leads to a higher quantity of products and a lower disequilibrium. A higher quantity of goods/services will decrease the worth/value of an item. In order to balance out the market, this reduction in price will help to increase the quantity in demand and eventually eliminate the excess supply to restore balance. (C) In the event there is an increase in both supply and demand, inevitably this continues to balance the markets. However, when supply and demand both increase, the variable becomes the price in which determining the stint of the increases will be questioned. A contextual example that illustrates equilibrium price (supply and demand balances) is the popular shoe created by Nike in the early 90s which has continually demonstrated an increase in demand. Jordans were initially in the $80-125 range when they first became a popular sensation. As the demand for this shoe increased, so did the supply and as a result it became more in demand. However, with increased supply and more variety in shoes, consumers began to decline in sales which resulted in an oversupply of the product. As Colander (2008) suggests, when this happens, there is a need to decrease the prices so that the demand can increase. However, Nike did not do this instead, they decided to reduce the supply of the product. This decrease in supply served them well; the increase in demand had skyrocketed. As a redirect and perhaps at the same time Michael Jordan retired, there was increase in the price and more drastic decrease in the supply which shifted the product back into equilibrium. Today, this

Running head: ECONOMIC ANALYSIS

scale is still consistent with only a certain number of shoes created and a continual increase in the price (now these shoes sell for $180-220 each pair); reflective of an increase in demand. Example of the Role of Supply and Demand in Decision Making Car dealerships are a good example illustrating the role of supply and demand in decision making. For example, if I were a manager at a truck dealership and we received 30 new Ford F150s to be sold at $35,000 each and I knew my demographic of customers needed these vehicles for career fields, I would not hesitate to keep the price as is. However, if there were a shift in the economy and the professions and customers were coming in to purchase more eco-friendly, smaller vehicles, then I am aware that I would need to decrease the price in order to sell the quantity on-hand and then make adjustments as needed in the next batch of vehicles. On the other hand, if there is an economic boom in the city, and all of my trucks were sold in a short period of time, I would need to increase the price of the vehicles in order to maintain equilibrium. If this demand increase and supply increase continues to fluctuate, I may consider increasing the price once more, but that would be at the risk of knowing that the temperament of the market would be temporary and at any given time, could transition at my dismay. As a decision maker, understanding these relationships between supply and demand are ever critical for maintaining and sustaining the business/company. Additionally, in understanding the nature of supply and demand also helps me to make informed decisions that will greatly impact the company by continuing the success of products/goods sold or bringing the company into financial peril.

Running head: ECONOMIC ANALYSIS

References Colander, D.C. (2008). Economics (7th ed.). Boston, MA: McGraw-Hill/Irwin. Varian, H.R. (1992). Microeconomic Analysis (3rd ed.). New York, NY: Norton.