A market is an institution which brings together buyers and sellers. For simplicity, assume there are a large number of buyers and a large number of sellers and therefore market equilibrium is determined by the invisible hand or rationing function of prices. Economists are most interested in price and quantity at market equilibrium. Remember, market equilibrium is a temporary economic condition. The non-price determinants of supply and demand or government intervention in markets are constantly affecting equilibrium price and equilibrium quantity. Review the market scenario. Follow the economic steps to determine how equilibrium price and equilibrium quantity will change based on the events affecting the market.

Economic steps

1. Identify the market

2. Identify the non-price determinant of demand or supply affecting market equilibrium (if there are two events, one affecting demand or and a separate one affecting supply it is necessary identify each non-price determinant and draw two graphs)

3. Explain if the non-price determinant of demand or supply will increase or decrease

4. Identify the ultimate change to market price and market quantity at the new equilibrium

DT: PT, QT DI D1 D2 DI Q Q 0 0 (a) ( b ) Increase in demand Decrease in demand P SI 5 2 ST: PV, QT st: PT, Qu D Q Q 0 0 (c) (d) Increase in supply Decrease in supply