The Impact on Price or Quantity will be uncertain When Both Curves Shift The Impact on Price or Quantity will be uncertain

When Both S & D Curves Shift: 1 variable is predictable (price or quantity) The other variable is indeterminate Equilibrium Price Equilibrium Quantity 2 Variables: or One is indeterminate (whenever both curves shift)

To solve multiple curve shifts: Step #1: Determine the effect each curve shift has separately on: Equilibrium Price & Quantity Step #2: The variable that moves in opposite directions is indeterminate Price or Qty

Step #1: Determine single curve shift impact on variables Equilibrium DEMAND Shift in Curve Price Qty Increases R Decreases L Equilibrium SUPPLY Shift in Curve Price Qty Increases R Decreases L

Example: Assume both Demand & Supply Decrease DEMAND Shift in Curve Price Qty Decreases left SUPPLY Shift in Curve Price Qty Decreases left Quantity must fall as both S & D => P↓ Price is Indeterminate as S => P↑ but D => P↓ You would need to know the magnitude of the shift to solve both!

Result if both shifts occur: Result if only one shift happens: Q2 D2 S1 S2 Q2 P2 Quantity must increase. P1 Price is Indeterminate D1 Variable that moves in opposite directions is indeterminate Q Qty Result if only one shift happens: Increase in demand: P Qty Increase in supply: P Qty

2 Practice Problems