Analyze changes in equilibrium price and quantity

Brian Lynch, Lake Land College,

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Students evaluate the impact of changes in supply and demand on the equilibrium price and quantity.

Context for Use

This activity is appropriate for Principles of Macroeconomics and Principles of Microeconomics courses. Students need to be familiar with shifts in demand and shifts in supply, and the concept of equilbrium.
Students will be required to know how to graph an increase/decrease in demand correctly and how to graph and increase/decrease in supply correctly.

20 minutes are needed for this exercise. 
There are no class size limitations.


In this activity, students are asked to identify the best description of the market outcome that will result from an event stated in a hypothetical news headline. The assignment is a good distillation of supply and demand theory and it requires the student to evaluate the impact of different events on the equilibrium price and quantity.

Expected Student Learning Outcomes

In this exercise students will use the provided information to evaluate how market changes can be impacted by shifts of the demand and supply curve

Information Given to Students


Students will be told that their group has been hired by ABC to help increase the quality of the economics news being broadcast to the public. They hear the following statement in a broadcast they are reviewing. "Do you know what's happened to the price of drugs in the United States? The price of cocaine, way down, the price of marijuana, way down. You don't have to be an expert in economics to know that when the price goes down, it means more stuff is coming in. That's supply and demand."

Which of the following statements would be the best feedback to provide the news team?.

A. The economics of the statement are correct. Good job!.
B. The economics of the statement are incorrect. The broadcast team is confusing a change in quantity demanded and a change in demand.
C. The economics of the statement are incorrect. The broadcast team should have added a consideration of the change in quantity exchanged in the drug markets to the story.
D. The economics are incorrect. The broadcast team should have added a review of government policies that affect both demand and supply to the broadcast.


Student Handout for changes in equiibrium assignment (Microsoft Word 2007 (.docx) 12kB Aug31 22) 

Teaching Notes and Tips

This exercise will provide students with insights into how changes in the marketplace can be analyzed incorrectly, whether it is by politicians or the media. The instructor can point out that it is vital for students to be able to think critically about market changes and to make sure they have all the necessary facts to make a correct judgment.
There is no special work required on the part of the instructor. The instructor can check in with the groups and inform them of time remaining. Students at the end of the activity will be asked to hold up the letter their group chose. Each group will be asked to explain why they didn't choose a different answer. It will also be pointed out to students that it is important to use the proper terminology.
Option A is not a correct answer. If a group selects this answer it will be hard to defend it, because the group will have neglected to understand that the demand can change. They can also be reminded that the outcome mentioned in the news report can be because of a simultaneous change in both curves. C is the best answer but B and D are attractive options. B might be correct. D is still amiss because there are many events other than government policy toward drug demand and supply that could affect drug markets. There may be an outbreak of war in the producing countries. Climate change can have an adverse effect on production. Demand can change as a result of lifestyle changes. 
The instructor needs to emphasize that when students are looking at changes in equilibrium, it is important to look at both the change in price and change in quantity


Students will be given an activity outside of class where they need to find an event in the news and correctly graph the impact that the event had on the equilibrium price and quantity.