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A four-step process analyzes how a single economic event changes equilibrium price and quantity. In what order do the four steps proceed?
ACompare new to old equilibrium; sketch the original model; pick a direction; decide demand or supply
BSketch the original model; decide demand or supply; pick a direction; compare new to old equilibrium
CDecide demand or supply; compare new to old equilibrium; sketch the model; pick a direction
DPick a direction; sketch the model; decide demand or supply; compare equilibria
Answer & Solution
Correct answer: B. Sketch the original model; decide demand or supply; pick a direction; compare new to old equilibrium
1. Step 1 sketches the market before the event and locates the original equilibrium.
2. Step 2 asks whether the event affects demand or supply.
3. Step 3 asks whether that effect shifts the relevant curve right or left.
4. Step 4 compares the new equilibrium price and quantity to the original ones.
5. Only option B keeps all four steps in that order.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 3 "Demand and Supply", section 3.3 | Changes in Equilibrium Price and Quantity: The Four-Step Process_
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