By using the tools we have learned in this chapter, we can link many real-
world events that cause demand or supply curves to shift and thus lead to
changes in market prices and quantities. For example, economic growth
in rapidly developing countries like China and India leads to increases in
global demand for a wide range of products such as steel, cement, copper,
and glass. Ceteris paribus, this economic growth will increase the
equilibrium prices of these products. For another example, consider the
rapid development of hydraulic fracturing (“fracking”) in the United
States. In recent years, use of this technology has led to an enormous
increase in the supply of natural gas in the North American market,
which, ceteris paribus, has caused a decrease in the equilibrium price.
It is worth noting that real-world demand and supply shifts are often not
isolated events. More realistic is that one event causes a shift in the
demand curve while some other event occurring at the same time causes
a shift in the supply curve. For example, an increase in Calgary’s
population may lead to an increase in demand for residential
accommodation while, at the same time, increased construction of condos
and houses increases the supply. If these demand and supply shifts occur
at the same time and are of the same magnitude, there may be no
noticeable effect on the equilibrium price (although equilibrium quantity
would increase).
Readers are referred to several Study Exercises at the end of this chapter
to work through examples of demand and supply shifts and the predicted
effects on equilibrium price and quantity.