When demand and supply both shift, one of price and quantity is usually certain and the other depends on how big each shift is. A good answer states the certain result and explains why the other cannot be fixed from the information given.
This lesson belongs to price mechanism with more than one change. Start from distinguishing a movement along demand from a shift if the two terms still blur.
Which result is certain?
Work out the effect of each shift separately on price and on quantity. Where the two effects point the same way, the result is certain. Where they point in opposite ways, the result depends on the sizes of the shifts.
| Shifts | Price | Quantity |
|---|---|---|
| Demand up, supply up | Uncertain | Rises |
| Demand up, supply down | Rises | Uncertain |
| Demand down, supply up | Falls | Uncertain |
| Demand down, supply down | Uncertain | Falls |
Worked example: same directions, different answers
A fictional market for fresh mangoes has demand Qd = 120 − 10P and supply Qs = 20 + 10P, where P is in RM per kilogram and quantity is in tonnes. Setting Qd = Qs gives 120 − 10P = 20 + 10P, so P = 5 and Q = 70.
A festival raises demand by 30 tonnes at every price, so Qd = 150 − 10P. At the same time, a good harvest raises supply. The question does not say by how much, so take two cases.
Case 1: supply rises by 10. Qs = 30 + 10P.
Set 150 − 10P = 30 + 10P, so 20P = 120 and P = 6. Quantity is 150 − 60 = 90. Check in supply: 30 + 60 = 90.
Case 2: supply rises by 50. Qs = 70 + 10P.
Set 150 − 10P = 70 + 10P, so 20P = 80 and P = 4. Quantity is 150 − 40 = 110. Check in supply: 70 + 40 = 110.
In both cases demand and supply increased and quantity rose above 70. But price rose from RM5 to RM6 in Case 1 and fell to RM4 in Case 2. The directions of the shifts did not fix the price. Their sizes did.
What a full-mark sentence looks like
For the mango market, a careful answer reads: “Both demand and supply increase, so equilibrium quantity rises. The rise in demand raises price and the rise in supply lowers price. Without knowing which shift is larger, the change in price cannot be stated.”
This answer names the certain result, gives both opposing effects and explains why the last step is not possible. It is better than a confident guess that happens to be wrong for the question’s actual numbers.
The mistake that costs marks
The usual slip is to draw two shifts and read the new price from the diagram as if the shifts had sizes. The pencil lines happen to cross somewhere, and the student writes “price rises”.
The fix: if the question gives no sizes, draw the shifts roughly equal, then say in words that the result for the uncertain variable depends on the sizes. If the question does give figures, use them and verify both equations give the same quantity.
Check yourself
In the same mango market, a disease reduces supply by 30 tonnes at every price (Qs = −10 + 10P) while demand stays at the original Qd = 120 − 10P. Find the new equilibrium, then state what happens if demand also rises by 30 at the same time (Qd = 150 − 10P).
Answer
Only supply falls: 120 − 10P = −10 + 10P, so 20P = 130 and P = 6.5. Quantity is 120 − 65 = 55. Check in supply: −10 + 65 = 55. Price rises to RM6.50 and quantity falls to 55 tonnes.
With both shifts: 150 − 10P = −10 + 10P, so 20P = 160 and P = 8. Quantity is 150 − 80 = 70. Price rises to RM8, which is certain for demand up and supply down. Quantity is 70, the same as the original, but in general it would be uncertain without the figures.
What to study next
Practise reading the original diagram against a calculation in checking an equilibrium calculation against the original diagram. Use the supply-demand diagram reasoning explorer to test other pairs of shifts.
For a teacher to check your certain-versus-uncertain wording, see online one-to-one Economics tuition.