Supply and Demand Analysis Example

Draw a supply and demand diagram for a firm and market that is initially in long-run equilibrium (where supply, demand, and long-run supply all cross at the same point). Suppose a recession decreases consumer's income. Analyze what happens to:

  • the total quantity supplied (Q)
  • the quantity supplied by individual firms (q)
  • the price (p)
  • the profits of firms ($\pi$)
  • the number of firms in the market (N)

Your analysis should include both the short-run impact and the long-run impact on all these variables.

Try on your own then watch the following video.

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