Shifting Supply and Demand
in the Same Direction




When supply and demand shift in the same direction they are both increasing or decreasing.  This results in two possible outcomes, one shifts more than the other or they shift by the same amount.  In either case the means of analysis is the same although the outcome will differ.  Looking at the graph we see that there are three possibilities when both demand and supply increase, a) demand could shift more than supply, b) supply and demand shift by the same amount, or c ) demand shifts less than supply.


Supply and Demand Both Increase

In all three diagrams, the initial supply and demand curves are designated S and D with equilibrium values of P* and Q*.  The increase in supply and demand is shown by the movement of the demand curve from D to D' and the movement of the supply curve from S to S'.  The new equilibrium's are designated by price P' and quantity Q'.

Looking at the results of the shifts, in  part (a) the demand shifted more than the supply, both quantity and price increased.  In part (b) both supply and demand moved by the same amount, the quantity increased and the price did not change.  In part (c)  supply moved more than demand, the quantity increased and the price decreased.  Combining these three possibilities tells us that when both demand and supply increase the quantity demanded increases but the change in price is dependent upon the relative movements of the supply and demand curves.  So an increase in supply and demand will increase quantity but we are uncertain what will happen to price.  A decrease in both supply and demand has similar results and is left as an exercise for the student.

Hosted by www.Geocities.ws

1