Managerial Economics and Strategy, 2/e

2.4 Shocks to the Equilibrium

Once a market achieves equilibrium, the equilibrium can persist indefinitely because no one applies pressure to change the price. The equilibrium changes only if a shock occurs that shifts the demand curve or the supply curve. These curves shift if one of the variables we were holding constant changes. If tastes, income, government policies, or costs of production change, the demand curve or the supply curve or both shift, and the equilibrium changes.

Effects of a Shift in the Demand Curve

Suppose that the average income in high-income countries increases by $15,000 from $35,000 to $50,000. As a result, consumers purchase more coffee at any given price. Reflecting this change, the demand curve for coffee shifts to ...