Shifts in Supply and Demand

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When conditions change, the curves shift and equilibrium changes. An increase in demand (rightward shift) raises both price and quantity; a decrease lowers both. An increase in supply (rightward) lowers price and raises quantity; a decrease raises price and lowers quantity.

Predicting these changes is the main use of the supply and demand model. Analysts follow a simple routine: decide which curve is affected, decide the direction of the shift, and read the new price and quantity from the graph. News events such as a frost, a new tax or a viral trend can all be analysed this way.

Example: a report says that coffee improves health. Demand rises, so the price of coffee goes up and more is sold. Then a frost destroys part of the coffee crop; supply falls, so price rises further, but quantity falls. When both curves shift, one of price or quantity is certain while the other depends on which shift is larger. Smartphones show the opposite pattern: better technology lowered costs, supply rose, and prices fell while quantity soared.

Common mistake: shifting the wrong curve, for instance shifting demand when the price of a good changes. A change in the good's own price never shifts its own curve. Tip: draw the original curves, draw one shift in a different colour, and mark the new crossing point.