ECO 1002 - Effect of Change(s) in Demand and/or Supply on Market Equilibrium (Practice Flashcards)

Shifts in the Demand Curve (Change in Demand)

Changes in demand cause the entire demand curve to shift.
- Increase in Demand (Rightward Shift):
  - Creates a temporary shortage at the original price.
  - Leads to an increase in both equilibrium price and quantity: $P^* \uparrow, \quad Q^* \uparrow$ .
- Decrease in Demand (Leftward Shift):
  - Creates a temporary surplus at the original price.
  - Leads to a decrease in both equilibrium price and quantity: $P^* \downarrow, \quad Q^* \downarrow$ .

Shifts in the Supply Curve (Change in Supply)

Changes in supply cause the entire supply curve to shift.
- Increase in Supply (Rightward Shift):
  - Creates a temporary surplus at the original price.
  - Leads to a decrease in equilibrium price and an increase in equilibrium quantity: $P^* \downarrow, \quad Q^* \uparrow$ .
- Decrease in Supply (Leftward Shift):
  - Creates a temporary shortage at the original price.
  - Leads to an increase in equilibrium price and a decrease in equilibrium quantity: $P^* \uparrow, \quad Q^* \downarrow$ .

Simultaneously Shifts in Both Demand and Supply Curves

When both curves shift, the effect on equilibrium price ( $P^*$ ) or quantity ( $Q^*$ ) can be indeterminate unless one shift is significantly larger.
- Increase in Demand & Increase in Supply:
  - Equilibrium quantity rises ( $Q^* \uparrow$ ).
  - Equilibrium price is indeterminate ( $P^* \uparrow\downarrow$ ).
- Decrease in Demand & Decrease in Supply:
  - Equilibrium quantity falls ( $Q^* \downarrow$ ).
  - Equilibrium price is indeterminate ( $P^* \downarrow\uparrow$ ).
- Increase in Demand & Decrease in Supply:
  - Equilibrium price rises ( $P^* \uparrow$ ).
  - Equilibrium quantity is indeterminate ( $Q^* \uparrow\downarrow$ ).
- Decrease in Demand & Increase in Supply:
  - Equilibrium price falls ( $P^* \downarrow$ ).
  - Equilibrium quantity is indeterminate ( $Q^* \downarrow\uparrow$ ).