Economics starts to become very interesting when we study how markets react to changing conditions. We now know how demand and supply curves shift, next we need to consider how these shifts affect market conditions.
We learned in the section on equilibrium that when markets are out of equilibrium, natural market forces will tend to move the market price and quantity toward the equilibrium. This insight gives us the basis for studying market adjustments. We analyze market adjustments by considering a market in equilibrium. We then consider a change in demand or a change in supply or both that disturb this equilibrium. We then examine how the market will move to a new equilibrium and how this new equilibrium differs from the old.
This approach may sound rather dry at first, but as we shall see, it gives us some interesting insights into all kinds of real-world events that affect our lives on a daily basis, and allow us to explain things that have occurred, make good predictions about the probable effects of future changes in market conditions, and even make appropriate policy recommendations about how to achieve particular social and economic goals.