| . |
© 1999-2003
Douglas A. Ruby
Revised: 01/17/2003
Market Analysis
Demand-Side Shocks
Supply-Side Shocks
|
Exogenous Shocks on Both Sides of the Market
It is possible and common to have exogenous shocks on both sides of the market.
Examples would include and increase in consumer income combined with a technological
improvement. Is this case, we would expect an outward shift in demand and an outward shift
in supply. We would expect an increase in both quantity demanded and
quantity supplied and thus an increase in the quantity of the good being traded. However, because
there is not a clear indication of whether a surplus or shortage is being created, we are uncertain about the impact on
market price.
We can experiment with combined shocks of different magnitudes using the
interactive diagram below. Referring to the shocks listed above, do the following:
- Click on the 'D++' button and the 'S++' button and press the 'Price Adjustment' button.
You will notice that the equilibrium quantity has increased but there is no change to the
equilibrium price. Press 'Reset'.
- Click on the 'D+' button and the S++' button and press 'Price Adjustment'. In this case
you should observe that equilibrium quantity has increased but equilibrium price has been
reduced. Press 'Reset'
- Click on the 'D++' button and the 'S+' button and press 'Price Adjustment'.
Now, you will observe that while equilibrium quantity still has increased, the equilibrium
price has also increased. Press 'Reset'
The net result of these combined shocks in a definite increase in quantity but we
are uncertain about the change in equilibrium price.
You can experiment with the following set of shocks using this interactive graph:
| Market |
Shock(s) |
Button(s) |
| Oranges |
An unexpected freeze wipes out the Florida orange crop |
S- / S-- |
| Automobiles |
An increase in gasoline prices and a decrease in the cost of capital |
D- / D-- and S+ / S++ |
| First Class Postage |
A reduction in Internet connection fees |
D- / D-- |
| Beer |
An increase in excise taxes and a decline in consumer preferences for alcoholic beverages. |
S- / S-- and D- / D-- |
| Housing in Silicon Valley |
The "Dot.com" collapse and a decrease in building
construction worker wages. |
S+ / S++ and D- / D-- |
| Tourism (Hotels and Resorts |
An negotiated increase in worker wages than leads to an increase in (consumer) incomes. |
S- / S-- and D+ / D++ |
|