Main Content

Lesson 1.4

Summary Results for Shifts in Demand and Supply

What happens to equilibrium price (P) and equilibrium quantity (Q) when supply (S) or demand (D) shifts?

In Lesson 1, you've learned about different factors that can change the demand and supply structures in a market. Some possible factors are changes in income, changes in the prices of related goods, changes in general economic conditions, and changes in consumer preferences.

Table 1.4 summarizes what would happen to the market price and quantity when the demand (consumer side) conditions and/or the supply (producer side) conditions change.

Please note that this summary table will be more meaningful after you complete the supply and demand section of the lesson. The table shows the combination of factors listed in the first column and the first row. For example, the first cell saying, "No change in eq. P / No change in eq. Q" is the outcome of the combination of "No change in S" and "No change in D."

Table 1.4. Summary Results for Shifts in Demand and Supply
  No change in S An increase in S A decrease in S
No change in D No change in eq. P
No change in eq. Q 		P lower
Q higher 		P higher
Q lower
An increase in D P higher
Q higher 		P ambiguous
Q higher 		P higher
Q ambiguous
A decrease in D P lower
Q lower 		P lower
Q ambiguous 		P ambiguous
Q lower
Note: eq. stands for equilibrium, P stands for price, Q stands for quantity, D stands for demand, and S stands for supply.

Lesson 1.4 Readings

Required

  • Read Chapter 2 of Textbook 1, pages 25–32 (Section 2.2: The Market Mechanism, and Section 2.3: Changes in Market Equilibrium).

Real-Life Applications (Recommended)

  • Please read the following applications from Textbook 1:
    • Example 2.1: The Price of Eggs and the Price of a College Education Revisited
    • Example 2.2: Wage Inequality in the United States
    • Example 2.3: Long-Run Behavior of Natural Resource Prices
    • Example 2.4: Effects of 9/11 on the Supply and Demand for New York City Office Space
    • Example 2.8: Behavior of Copper Prices
    • Example 2.9: Upheaval in the World Oil Market
  • See the list of recent articles at the end of the Lesson 1 module.

Top of page