Скачать или смотреть 2.3 (Micro) Competitive market equilibrium: Scenario 3: Increase in demand: IB Economics

Video tutorial for IB Economics students illustrating how to draw and analyze a graph illustrating competitive market equilibrium and the impact of an increase in demand on the reallocation of resources, goods and services as a result of excess demand in the short run.

Scenario 3:
The demand increases leading to excess demand in the short run thus reallocating resources, goods and services to achieve market equilibrium in the long run.

Note:
How to draw, at time 1:28
IB Econ Paper analysis of the economic model for Scenario 3 at time 12:08
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Analysis of Scenario 3: Global market for coffee beans (input market): demand is by coffee firm manufacturers (Nespresso), supply is by coffee farmers
Graph A: Global market for coffee beans (inputs)
X-axis measures quantity supplied and demand
Y-axis measures price

There are two downward sloping demand curves in accordance with the Law of Demand, labelled D1, D2
D1=MB1
D2=MB2

There is one upward sloping supply curve in accordance with the Law of Supply, S1
S1=MC (marginal costs of production by coffee bean farmers)

In the global market for coffee beans, where S1=D1 a free market equilibrium price is set at P1 with a Qs and Qd at Q1 (point A), at Q1, (Qs=Qd)
In addition, MC=MB thus it is allocatively efficient (at time 12:15)
Consumer and producer surplus (social surplus) is at maximum where MB=MC

As a result of Nespresso releasing their Nespresso machine (output), demand for the Nespresso machine increases by households (tastes and preferences as a non-price determinant of demand), leading the firm (Nespresso) to increase their demand for coffee beans (inputs), the demand curve shifts out as a result from D1 to D2 (at time 12:41)
In the short run, price is held constant at P1
At P1, Qd=Q2 (point B)
At P1, Qs=Q1 (point A)
Qd, (Q2) is greater than Qs, (Q1)
Excess demand
At Qs (Q1), MB is greater than MC, underallocation of resources to the production of coffee versus what is desired by society (at time 13:27)

Excess demand places upward pressure on price (price mechanism takes effect to reallocate resources, goods and services to achieve allocative efficiency)
Price increases from P1 to P2 (at time 13:42)
As price increases, Qs increases from Q1 to Q3 (from point A to point C)
As price increases, Qd decreases from Q2 to Q3 (from point B to point C)

Where S1=D2 (point C), a new free market equilibrium is established (at time 14:08)
New equilibrium price at P2
New equilibrium quantity at Q3, (Qs=Qd)
MC=MB (allocatively efficient)