Page 323 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

There are many factors that can affect the market for product X. Indeed, a market may not be in
equilibrium, and, in this case, the market price must be determined in terms of rate equations as opposed
to equilibrium relationships. However, for the sake of this simplified discussion, it will be assumed that
market equilibrium is always reached. If something changes in the market, either the supply or demand
curve (or both) will shift, and a new equilibrium point will be reached. As an example, consider the
situation when a large new plant that produces X comes on line. Assuming that nothing else in the market
changes, the supply curve will be shifted downward and to the right, which will lead to a lower
equilibrium price. This situation is illustrated in Figure 10.9. The intersection of the demand curve and
the new supply curve gives rise to the new equilibrium price, P eq,2 , which is lower than the original

equilibrium price, P eq,1 . The magnitude of the decrease in the equilibrium price depends on the magnitude
of the downward shift in the supply curve. If the new plant is large compared with the total current
manufacturing capacity for product X, then the decrease in the equilibrium price will be correspondingly

large. If this decrease in price is not taken into account in the economic analysis, the projected
profitability of the new project will be overestimated, and the decision to invest might be made when the
correct decision would be to abandon the project.

Figure 10.9 Illustration of Market Equilibrium for Product X When a New Plant Comes On-Line