Microeconomics,, 16th Canadian Edition

demand shifts the demand curve to taking the new equilibrium to
Price rises to and quantity rises to Starting at a decrease in
demand shifts the demand curve to taking the new equilibrium to
Price falls to and quantity falls to
In part (ii), the original demand and supply curves are D and which
intersect to produce equilibrium at with a price of and a quantity of
An increase in supply shifts the supply curve to taking the new
equilibrium to Price falls to and quantity rises to Starting at
a decrease in supply shifts the supply curve from to taking the new
equilibrium to Price rises to and quantity falls to

The effects of the four possible curve shifts are as follows:

1. An increase in demand causes an increase in both the equilibrium

price and the equilibrium quantity exchanged.

2. A decrease in demand causes a decrease in both the equilibrium

price and the equilibrium quantity exchanged.

3. An increase in supply causes a decrease in the equilibrium price

and an increase in the equilibrium quantity exchanged.

4. A decrease in supply causes an increase in the equilibrium price

and a decrease in the equilibrium quantity exchanged.

Demonstrations of these effects are given in the caption to Figure 3-8
The intuitive reasoning behind each is as follows:

1. AN INCREASE IN DEMAND (THE DEMAND CURVE SHIFTS

TO THE RIGHT). An increase in demand creates a shortage at

the initial equilibrium price, and the unsatisfied buyers bid up the

D 1 ,
p 1 Q 1. E 0 ,
D 2 ,
p 2 Q 2.
S 0 ,
E 0 , p 0
Q 0. S 1 ,
E 1. p 1 Q 1.
S 0 S 2 ,
E 2. p 2 Q 2.