The buying decisions of households and the selling decisions of businesses are brought together in a market. Here, market pressures created by surpluses or shortages serve to determine the price of the product and the amount bought and sold.

Exploration: How do changes in supply or demand affect equilibrium price and quantity?

Consider the market for corn as summarized in the graph. Currently, the market is in equilibrium - neither surplus nor shortage - at a price of $3 per bushel with 7 thousand bushels being bought and sold per week. Using the interactive graph, you can predict the impact on market price and quantity of changes in conditions affecting the corn market. To use the graph, shift either the supply or demand curve, by clicking on the curve’s label and, holding down the left mouse button, dragging the curve to the new location. Once the curves are in place, release the mouse button and click on the New Equilibrium button to observe the changes in price and quantity.

1. What is the likely effect on equilibrium price and quantity if corn farmers experience an extended period of bad weather?
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2. What is the likely effect on the equilibrium price and quantity of corn if the government requires ethanol (a corn byproduct) to be added to all gasoline to reduce emissions?
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3. Suppose both of the above incidents occur - bad weather and a government ethanol mandate? How will the corn market be affected
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4. Experiment on your own: drag either the supply curve or the demand curve followed by pressing the New Equilibrium button. What generalizations can you draw with respect to changes in equilibrium price and quantity?
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