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When Both Curves Shift Now what do I do?
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Event: New report shows many Hybrid Car Batteries are exploding
Sample Problem Event: New report shows many Hybrid Car Batteries are exploding Hybrid Cars TIPSEN ↓ Tastes ↓ Determinant of Demand ∆ed Decrease in Demand Price S1 D2 25,000 E1 P2 E2 Q2 D1 Equilibrium Px ↓ & Qty ↓ 1 million Qty
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When Both S & D Curves Shift:
1 equilibrium outcome is predictable & 1 is indeterminate 2 Variables: Equilibrium Price Equilibrium Quantity or One is indeterminate (when both curves shift)
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Single curve shift affect on
Equilibrium DEMAND Shift in Curve Price Qty Price . Increases R S1 Decreases L P1 E1 Equilibrium D1 SUPPLY Shift in Curve Price Qty Q1 QTY Increases R Decreases L
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To solve multiple curve shifts:
Step #1: determine the effect each shift has separately on equilibrium: Price & Qty Step #2: The variable that moves in opposite directions is indeterminate Price or Qty
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. Example: Demand & Supply BOTH Decrease Increases R --------
DEMAND Shift in Curve Price Qty Price . S1 Increases R P1 E1 Decreases L D1 Q1 QTY SUPPLY Shift in Curve Price Qty If D & S both decrease? Increases R Decreases L Qty Decreases & Price is Indeterminate
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Result if both shifts occur: Result if only one shift happens:
Q2 D2 S1 S2 Q2 P2 Quantity will 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
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Increase in demand Increase in supply P S S1 P1 P D1 D Q Q1 Qty
Quantity increases P1 P Price is Indeterminate D1 D In this example, it was unchanged Q Q1 Qty Increase in demand Increase in supply
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3 Practice Problems
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Practice Problems Price S1 -------------- ------------- D1 Qty P1 E1
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Sample Problem Soda S1 S2 -------------- ------------- D2 D1
Breakthroughs in Soda Bottling and Price of bottled water increases Soda Price S1 Determinant of Supply Technology Improves Supply Increases Shifts Right S2 Determinant of Demand Price of Sub. Increases Demand Increases Shifts Right P1 E1 D2 D1 Effect on Equilibrium Price & Qty? Q1 Qty
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