When Both Curves Shift The Impact on Price

When Both Curves Shift The Impact on Price or Quantity will be uncertain

When Both S & D Curves Shift: • 1 variable is predictable (price or quantity) • The other variable is indeterminate Equilibrium Price 2 Variables: or One is indeterminate (whenever both curves shift) Equilibrium Quantity

To solve multiple curve shifts: Step #1: Determine the effect each curve shift has separately on: Equilibrium Price & Quantity Step #2: The variable that moves in opposite directions is indeterminate Price or Qty

Single curve shift impact on variables Equilibrium Impact DEMAND Shift in Curve Increases R (↑) Decreases L (↓) Price Qty Demand moves variables in same direction D ↑ => P ↑ & Qty ↑ Equilibrium impact SUPPLY Shift in Curve Price Qty Increases R (↑) Supply moves variables in opposite direction Decreases L (↓) S ↑ => P ↓ & Qty ↑

Example: Assume both Demand & Supply Decrease DEMAND Shift in Curve Decreases SUPPLY Qty left Shift in Curve Decreases Price Qty left Quantity must fall as both S & D cause Q↓ Price is Indeterminate as S => P↑ but D => P↓ You would need to know the magnitude (size) of the shift to solve both!

P S 1 Result if both shifts occur: S 2 P 2 Quantity must increase. P 1 P 2 Price is Indeterminate D 2 D 1 Q Q 2 Qty Result if only one shift happens: Increase in demand: P Qty Increase in supply: P Qty Variable that moves in opposite directions is indeterminate

2 Practice Problems