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situation, the change in quantity bought and sold can be predicted, but the change in
price is ambiguous. The two possible outcomes when the supply and demand curves
shift in the same direction (which you should check for yourself) are as follows:
• • When both demand and supply increase, the equilibrium quantity rises, but the
change in the equilibrium price is ambiguous.
• • When both demand and supply decrease, the equilibrium quantity falls, but the
change in the equilibrium price is ambiguous.

Adventures in
AP Economics
®
Module 1.6 Review Watch the video:
Market Equilibrium

Check Your Understanding

1. In the following three situations, the market is initially b. A technological innovation has lowered the cost of
in equilibrium. After each event described below, does paper production.
a surplus or shortage exist at the original equilibrium c. When a movie-streaming service lowers its price,
price? What will happen to the equilibrium price as a local movie theaters have more unfilled seats.
result? 3. A computer-chip maker introduces a new chip that
a. In the previous year there was a bumper crop of is faster than the previous one. In response, demand
grapes. for computers using the earlier chip decreases as
b. After a hurricane, Florida hoteliers often find that customers put off purchases in anticipation of machines
many people cancel their upcoming vacations, containing the new chip. Simultaneously, computer
leaving them with empty hotel rooms. makers increase their production of computers
c. After a heavy snowfall, many people want to buy containing the earlier chip in order to clear out their
second-hand snowblowers at the local tool shop. stocks of those chips.
2. For each of the following examples, explain how the Draw two diagrams of the market for computers
indicated change affects supply or demand for the good containing the earlier chip: (a) one in which the
in question and how the shift you describe affects the equilibrium quantity falls in response to these events,
equilibrium price and quantity. and (b) one in which the equilibrium quantity rises.
a. As the price of gasoline increases, more people buy What happens to the equilibrium price in each diagram?
electric cars.

®
Tackle the AP Test: Multiple-Choice Questions

1. Which of the following describes equilibrium in the 3. Which of the following describes what will happen in
supply and demand model? the market for tomatoes if a salmonella outbreak is
a. Supply equals demand. attributed to tainted tomatoes?
b. There is no tendency for price to change. a. Supply will decrease and price will increase.
c. The market has either a surplus or a shortage. b. Supply will decrease and price will decrease.
d. Price is equal to quantity. c. Demand will decrease and price will increase.
e. The number of buyers and sellers is balanced. d. Demand will decrease and price will decrease.
2. Price will tend to fall when e. Supply and demand will both decrease.
a. there is a shortage.
b. quantity demanded is greater than quantity supplied.
c. quantity supplied is less than quantity demanded.
d. price is above equilibrium.
e. price is below equilibrium.

54 Macro • Unit 1 Basic Economic Concepts
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