Fundamentals of Business

Changes in market equilibrium

Practical uses of supply and demand analysis often centre on the different variables that change equilibrium price and quantity, represented as shifts in the respective curves. Comparative statistics of such a shift traces the effects from the initial equilibrium to the new equilibrium.

1.1.3 Demand curve shifts

A person increasing the quantity demanded at a given price is being referred to as an increase in demand. Increased demand can be represented on the graph as the curve being shifted right, because at each price point, a greater quantity is demanded, as from the initial curve D1 to the new curve D2. In the diagram, this raises the equilibrium price from P1 to the higher P2. This raises the equilibrium quantity from Q1 to the higher Q2. Conversely, if the demand decreases , the opposite happens: a leftward shift of the curve.

Factors contributing to shift in Demand
Persuasion
Process aimed at changing a person's (or a group's) attitude or behaviour toward some event, idea, object, or other person(s), by using written or spoken words to convey information, feelings, or reasoning, or a combination of them. For example
Commercial advertising
Expectations
Presumed degree of probability of an occurrence.

A bidding war has broken out to buy Alliance Boots
The proposed bid comes from a group that includes private equity firm Terra Firma, medical charity The Wellcome Trust, and banking group HBOS. Earlier on Friday, the Boots board backed a £10.6bn takeover bid from Kohlberg Kravis Roberts (KKR) and Boots deputy boss Stefano Pessina. News of the bidding war sent shares in the High Street chemist and drugs firm up 8.2%, or 86 pence, to £11.35 in London on Friday. By closing, shares had dropped marginally to close 7% higher at £11.25. Terra Firma said that there was no guarantee its £11.15 per share proposal - which is conditional on seeing Boots books - would become a definite offer. Meanwhile KKR's £10.90 per share move is a firm bid. Customers, suppliers, employees and the unions had to realise that KKR's proposal was "all about growth" and would lead "in the future" to more jobs and significant investments, Boots was eventually bought at £11.6 billion.