Supply and Demand Graphs: Shifts, Equilibrium and Controls
Supply and demand graphs compare an original equilibrium with a changed market. Mark the starting price and quantity, identify which relationship changes, and find the new intersection. Keep a curve shift separate from a movement along an unchanged curve.
Mark the original equilibrium before changing a curve.
Read Three Market-Graph Examples
Demand shifts right from D_1 to D_2 while upward-sloping supply remains unchanged. Which feature identifies the new equilibrium?
- Move down the original demand curve to a lower price.
- Shift supply left until quantity is unchanged.
- The new intersection has a higher price and quantity.
- Move along supply to lower price and quantity.
- Keep the old equilibrium because only willingness to buy changed.
The new intersection has a higher price and quantity. The demand shift creates a new intersection with the unchanged supply curve at both a higher price and higher quantity.
On a supply-and-demand graph, a binding price floor appears
- below equilibrium, with excess demand
- at equilibrium, with no excess quantity
- above equilibrium, with excess supply
- below equilibrium, with excess supply
- above equilibrium, with excess demand
above equilibrium, with excess supply A binding floor is set above equilibrium. At that price, the horizontal gap between quantity supplied and demanded is a surplus.
Which event shifts market labor supply for electricians to the right?
- A rise in demand for electrical services
- An increase in electricians’ productivity
- A higher price of electrical equipment
- A fall in the wage paid to electricians
- More workers complete electrician training
More workers complete electrician training More qualified workers increase the amount of electrician labor offered at every wage.
Video Lesson: Read the Equilibrium Intersection
A focused video lesson from Marginal Revolution University.
Mark the Original Equilibrium
A reliable graph begins before the event occurs. Label price on the vertical axis and market quantity on the horizontal axis, draw the original demand and supply curves, and mark their intersection (P_0,Q_0). Project from the intersection to both axes to read the starting values. Only then translate the event into a curve change. This order prevents the common error of comparing a new curve with an equilibrium that was never identified.
Identify the Changed Determinant
Curve shifts come from changes in underlying determinants. Higher consumer income shifts demand right for a normal good. A lower input price shifts supply right. A change in the good’s own price does not shift either relationship. It moves buyers and sellers to different points along their existing curves; the flexible-price benchmark then describes adjustment toward market clearing.
Compare the Four Single-Curve Shifts
| Event | Curve change | New equilibrium |
|---|---|---|
| Demand increases | D right |
Price up, quantity up |
| Demand decreases | D left |
Price down, quantity down |
| Supply increases | S right |
Price down, quantity up |
| Supply decreases | S left |
Price up, quantity down |
Separate Certain and Ambiguous Results
When both curves shift, use the direction table rather than guessing. Demand and supply both increasing make quantity rise but leave price ambiguous. Demand increasing while supply decreases makes price rise but leaves quantity ambiguous. “Ambiguous” means the result depends on relative shift sizes, not that economics offers no information.
Follow Two Changes Without Guessing the Price
Consumers develop a stronger taste for electric bicycles while battery prices fall. Demand shifts right and supply shifts right. Both changes raise equilibrium quantity, so quantity definitely rises. Demand tends to raise price while greater supply tends to lower it, so the price change cannot be known without magnitudes.
Locate Binding Ceilings and Floors
Price controls are read from the original equilibrium. A ceiling binds only below equilibrium. At the legal price, trace to demand for quantity demanded and to supply for quantity supplied. The difference is shortage. A floor binds only above equilibrium and creates surplus. With enforced controls and no government purchases, private trades cannot exceed the short side of the market. Matching frictions can reduce actual trades further, and rationing rules affect who trades.
Label the Buyer–Seller Price Wedge
A per-unit tax in the basic competitive model creates a price wedge rather than just a curve label. Mark the buyer price above the seller price by the tax amount and read the common after-tax quantity. Subsidies create the opposite wedge. Legal incidence—who sends the payment to government—does not by itself determine the economic burden; relative elasticities matter.
Explain the Adjustment in Words
After drawing, narrate the mechanism: “Lower production cost shifts supply right, creating surplus at the old price. Sellers compete price downward, and equilibrium quantity rises.” If the graph and sentence disagree, repair the graph. This narration turns a picture into an economic argument.
Check the Benchmark and Its Limits
OpenStax’s equilibrium-change method starts with the original market, identifies the changed determinant, shifts the relevant curve and compares equilibria. The directional results here use ordinary downward demand and upward supply. They are conditional model predictions, not a claim that observing one price change identifies its cause.
The price-control discussion distinguishes a legal limit from a market-clearing price. A shortage measures the gap between quantities wanted and offered at the controlled price; it does not tell you which buyers receive the available units.
The labor-market section distinguishes employers’ demand for workers from workers’ supply. In the electrician example, more qualified workers are assumed available at each wage; training can also affect productivity and employers’ demand in a broader scenario. The tax-incidence section explains why relative price sensitivity matters when dividing a tax burden.
Calculate Both Equilibria from a Schedule
In a hypothetical market, quantity demanded is Qd = 120 − 4P and quantity supplied is Qs = 6P. Demand then changes to Qd = 140 − 4P, with supply unchanged. What are the original and new equilibria?
Check your reasoning
Originally, set quantities equal: 120 − 4P = 6P, so P = 12 and Q = 72. After the demand change, 140 − 4P = 6P, so P = 14 and Q = 84. Quantity demanded is 20 units higher at every given price, but equilibrium quantity rises by only 12 units because the new equilibrium price also changes. Supply has not shifted; the market moves along it.
Try Three Supply-and-Demand Graph Questions
Choose one answer, then check your reasoning. These are short learning checks, not an exam score. If the controls are unavailable, the explanations remain readable below each question.
Answer B. A leftward demand shift creates excess supply at the old price. In the flexible-price model, the new intersection lies at a lower price and lower quantity along the unchanged supply curve.
Answer A. The shortage is 90 − 55 = 35 units. Offered supply limits private trades to at most 55; the graph alone does not guarantee every offered unit is matched or determine which buyers receive it.
Answer D. Both shifts reduce equilibrium quantity. Lower demand tends to reduce price, while lower supply tends to raise it. Those opposing price effects need magnitudes to determine the net change.
Connect Shifts, Price Signals and Firm Decisions
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