Microeconomic Equilibrium shifts

Question 1

What happens when demand increases (shifts right)?

Answer 1

Price and quantity both increase.

Question 2

What are causes of an increase in demand?

Answer 2

Population growth, better advertising, income rise (PASIFIC factors).

Question 3

What happens when supply increases (shifts right)?

Answer 3

Price falls, quantity increases.

Question 4

What factors shift the supply curve to the right?

Answer 4

Lower production costs, more firms, better tech, subsidies (PINTSWC factors).

Question 5

What happens if demand falls (shifts left)?

Answer 5

Both price and quantity fall.

Question 6

What happens if supply falls (shifts left)?

Answer 6

Price rises, quantity falls.

Question 7

What happens when the supply curve shifts to the left (S1 → S2)? Explain using ARSI.

Answer 7

Price rises, quantity falls (P1 → P2, Q1 → Q2).

Allocate: Higher prices allocate scarce goods to those who value them most.

Ration: Demand contracts — fewer people can/will buy at higher prices.

Signal: Higher prices signal a shortage to the market.

Incentivise: Firms are incentivised to increase supply or enter the market due to potential profits.