Social Sciences and History / Unit 13 SSH 1216 worked example, 60 to 90 seconds
The Four-Step Process on an Event
The idea
The exam describes an event and asks its effect on equilibrium price and quantity, and the anchor's four steps answer every such question. One: sketch a supply and demand diagram for the market before the event, with the original equilibrium. Two: decide whether the event affects supply or demand; a change in tastes, population, income, related prices or expectations is demand, and a change in input prices, natural conditions, technology, taxes, regulations or subsidies is supply. Three: decide whether the effect is positive or negative and draw the shifted curve, rightward for more at every price, leftward for less. Four: compare the new equilibrium price and quantity with the original ones. When two events shift both curves, the effect on one variable is certain and the other depends on the sizes of the shifts.
In practice
Given "a frost destroys half the orange crop", supply, leftward: price up, quantity down. Given "a study links coffee to long life", demand, rightward: price up, quantity up. Given "a new machine halves the cost of making chips", supply, rightward: price down, quantity up. Given "population grows and technology improves", both rightward: quantity up, price uncertain.
Where people slip
The trap is skipping step two and shifting the wrong curve; a price change never shifts either curve, since price is on the axis. The second trap is the double shift, where one answer is indeterminate without magnitudes.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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