|An increase in demand shifts the demand curve to the right
to D1D1. The price
increases. A decrease in supply shifts the supply
curve to the left from SS
to S1S1and causes an increase
in the price and a decrease
in the quantity.
The combined impact of an increase in demand and a decrease in supply is an increase in the equilibrium price. The impact on the equilibrium quantity is, however, uncertain since an increase in demand increases the quantity, ceteris paribus, while a decrease in supply reduces the quantity.