Predicting Market Changes

In economics, Demand is how much consumers want a product. When something becomes a 'must-have' trend, the demand curve shifts to the right. This creates a shortage at the old price, forcing the Equilibrium Price ($P$) to rise. Conversely, if a product goes out of style, demand shifts left, and prices drop to attract buyers. Think of it as a tug-of-war: when more people pull for a product, the price gets pulled higher. Mathematically, if Demand ($D$) increases ($D \uparrow$), then both Price ($P$) and Quantity ($Q$) will increase ($P \uparrow, Q \uparrow$).

While demand is about buyers, Supply is about the businesses making the goods. Supply shifts usually happen because of changes in Production Costs. If it becomes cheaper to make a phone (perhaps due to a new robot), supply shifts right ($S \uparrow$). This makes the product more abundant, causing the price to fall ($P \downarrow$) and the quantity sold to rise ($Q \uparrow$). However, if a resource becomes scarce—like a storm destroying cocoa crops—supply shifts left ($S \downarrow$). This makes the product rarer, driving the price up ($P \uparrow$) and the quantity down ($Q \downarrow$).

To predict the future of a market, you must identify which curve is moving. Ask yourself: 'Is this affecting the buyer's desire (Demand) or the seller's cost (Supply)?' Once you identify the shifter, you can use the rules of equilibrium. Remember the 'Golden Rules': - $D \uparrow \implies P \uparrow, Q \uparrow$ - $D \downarrow \implies P \downarrow, Q \downarrow$ - $S \uparrow \implies P \downarrow, Q \uparrow$ - $S \downarrow \implies P \uparrow, Q \downarrow$