Introduction

The following table provides a summary of the impact of a change in demand and supply on the equilibrium price and quantity:

Effect of Curve Effect on Price Effect on Quantity
Increase in demand Rightward shift: Demand curve Price increases Quantity increases
Decrease in demand Leftward shift: Demand curve Price decreases Quantity decreases
Increase in supply Rightward shift: Supply curve Price decreases Quantity increases
Decrease in supply Leftward shift: Supply curve Price increases Quantity decreases

What we can read from this table is that if:

  • price increases and quantity increases, then the cause is an increase in demand
  • price decreases and quantity decreases, then the cause is a decrease in demand
  • price decreases and quantity increases, then the cause is an increase in supply
  • price increases and quantity decreases, , then the cause is a decrease in supply

Activity

Use the above table to do the following activity:

The statements below indicate the end result of an event on a market. You must indicate whether this result is caused by an increase in demand, a decrease in demand, an increase in supply, or a decrease in supply.

  1. The equilibrium price increases and the equilibrium quantity increases.
  2. The equilibrium price increases and the equilibrium quantity decreases.
  3. The equilibrium price decreases and the equilibrium quantity increases.
  4. The equilibrium price decreases and the equilibrium quantity decreases.
Click to see the answer

a. An increase in demand

b. A decrease in supply

c. A inrease in supply

d. A decrease in demand