Shifts in supply and demand
When something other than the price changes (income, tastes, sellers’ costs), the whole curve shifts. You find the new equilibrium just like the old one, using the shifted function.
Formulas and rules
- Demand rises (curve shifts right): price and quantity rise
- Supply rises (curve shifts right): price falls, quantity rises
- “More demanded at every price”: the intercept a increases
- Quantity changes by less than the shift, because the price absorbs part of it
Your turn
Three problems on this topic. Type numbers like 12.5 or 1,250 and elasticities with their sign.
Task
Starting point: demand Q_d = 150 − 4p, supply Q_s = 60 + 2p (p in €). Demand falls: at every price 6 fewer units are demanded. Find the new equilibrium.
New equilibrium price in €
New equilibrium quantity
How does the price change?
Numbers like 12.5 or 1,250; elasticities with their sign (−0.75); percentages as a number (12.5). Round to 2 decimal places.
Worked example
Starting point: demand Q_d = 274 − 6p, supply Q_s = 26 + 2p (p in €). Supply rises (e.g. cheaper raw materials): at every price 8 more units are supplied. Find the new equilibrium.
Worked solution
- 1.Old equilibrium: p* = 31, q* = 88
- 2.New function: Q_s = 34 + 2p
- 3.Set equal: 240 = 8p → p = 30
- 4.Quantity: 274 − 6 × 30 = 94
Typical mistake: Adding the whole shift to the quantity (q* + shift). Because the price reacts, the quantity changes by less: part of the shift is absorbed by the price.
Common questions
What is the difference between a movement along the curve and a shift?
If only the good’s own price changes, you move along the curve. If anything else changes (income, prices of other goods, costs), the whole curve shifts.