Use a four-step process for a single shift
Name the event, curve, direction, and new outcome.
An increase in demand raises equilibrium price and quantity. A decrease in demand lowers both. An increase in supply lowers price and raises quantity. A decrease in supply raises price and lowers quantity. Rather than memorize four phrases, sketch the curve and follow the new intersection.
Use four explicit steps: identify the event, select the curve, choose the shift direction, and compare the new intersection with the old one. If household income rises for a normal good, the event is buyer income, so demand shifts right. With supply fixed, both equilibrium price and quantity rise. Each link should be supported before the result is stated.
| Single shift | Equilibrium price | Equilibrium quantity |
|---|---|---|
| Demand increases | rises | rises |
| Demand decreases | falls | falls |
| Supply increases | falls | rises |
| Supply decreases | rises | falls |
Be precise about causal sequences. If production technology improves, supply rises. The lower equilibrium price then causes an increase in quantity demanded. Demand itself did not rise. The same event can therefore produce a supply shift and a movement along demand.
This distinction also works in reverse. If preferences for a product strengthen, demand shifts right. The higher equilibrium price causes a greater quantity supplied along the unchanged supply curve. Supply did not increase. The observed market quantity rises because sellers respond to the new price, not because their costs or number changed.
A complete adjustment chain
A disease destroys part of the orange crop. Orange supply shifts left. Equilibrium price rises and equilibrium quantity falls. The higher price reduces quantity demanded along the unchanged demand curve. Saying “demand falls” confuses the movement with a shift.
When the question concerns a related market, complete one market before entering the next. A disease that raises the price of oranges may shift demand for apples right if the goods are substitutes. In the orange market the initial event shifts supply. In the apple market the changed orange price shifts demand. One story can therefore change different curves in different markets.
When a determinant affects cost and preferences simultaneously, a single-shift shortcut is not justified. A health warning may reduce demand for a food while a new regulation raises its production cost and reduces supply. Price or quantity may then be ambiguous. The exam will either ask for one isolated effect or provide enough information to analyze both. Do not silently ignore a stated channel.
Use a verbal check after the graph. “Demand increased, so at the old price buyers planned more than sellers. The shortage pressure raised price and drew out more quantity supplied.” This adjustment story should agree with the new intersection. If it does not, the curve or direction was probably chosen incorrectly.
An answer can name the correct curve yet fail by reporting only its shift. If the stem asks for equilibrium, continue to both price and quantity. If it asks for quantity demanded, follow the equilibrium price to a movement on demand. Always end at the noun requested rather than at the first true statement in the chain.
A drought raises the cost of growing tomatoes. Demand is unchanged. What happens to the tomato market?
- Supply shifts right, lowering price
- Supply shifts left, raising price and lowering quantity
- Demand shifts left, lowering price and quantity
- Quantity supplied falls along an unchanged supply curve
- Price and quantity are both indeterminate
Supply shifts left, raising price and lowering quantity The drought changes a production condition, so supply is the only curve that shifts. The new intersection with unchanged demand has a higher price and a lower quantity.
Household income rises, and restaurant meals are a normal good. Supply is unchanged. Which four-step conclusion is correct?
- Demand shifts right, so price and quantity rise
- Demand shifts left, so price and quantity fall
- Supply shifts right, so price falls and quantity rises
- There is movement along demand with no shift
- Price rises while quantity is uncertain
Demand shifts right, so price and quantity rise The market is restaurant meals, income is the nonprice cause, and normal-good demand shifts right. With supply fixed, the new equilibrium has both a higher price and a larger quantity.
Which event shifts demand for bus rides to the left if bus rides are a normal good?
- A rise in the price of gasoline
- A fall in the bus fare
- A fall in riders’ income
- An increase in city population
- An expected increase in next month’s bus fare
A fall in riders’ income For a normal good, lower income reduces demand at every price. A fare change would cause movement along demand.
Watch the idea in action
A focused video lesson from Chris D McCarthy, PhD.
Reza is an experienced Math instructor and a test-prep expert who has been tutoring students since 2008. He has helped many students raise their standardized test scores--and attend the colleges of their dreams. He works with students individually and in group settings, he tutors both live and online Math courses and the Math portion of standardized tests. He provides an individualized custom learning plan and the personalized attention that makes a difference in how students view math.
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