Supply and Demand Curve Shifts
A demand or supply curve shifts when something other than the product's own price changes, such as income, tastes, input costs or technology. A shift moves the whole curve left or right and creates a new equilibrium. A change in the product's own price only moves you along the existing curve.
What you will learn
- The difference between a shift and a movement along a curve
- What causes the demand curve to shift right or left
- What causes the supply curve to shift right or left
- How each shift changes equilibrium price and quantity
- How to reason through two shifts happening at once
The formula
- Qd
- quantity demanded
- Qs
- quantity supplied
- P*
- equilibrium (market-clearing) price
Worked example
Demand is Qd = 100 − 2P and supply is Qs = 20 + 2P. Rising incomes shift demand to Qd = 120 − 2P. What happens to equilibrium price and quantity?
- Original equilibrium: 100 − 2P = 20 + 2P, so P = 20
- Original quantity: Q = 100 − 2(20) = 60
- New equilibrium: 120 − 2P = 20 + 2P, so P = 25
- New quantity: Q = 120 − 2(25) = 70
Answer: Demand shifts right, so price rises from 20 to 25 and quantity rises from 60 to 70.
Common questions
What causes a shift in the demand curve?
Anything other than the good's own price that changes how much people want to buy: income, tastes, prices of substitutes and complements, expectations about future prices, and the number of buyers. More demand at every price shifts the curve right.
What causes the supply curve to shift?
Changes in input costs, technology, taxes and subsidies, the number of sellers, and producers' expectations. Cheaper inputs or better technology let firms supply more at every price, shifting the curve right. Higher costs shift it left.
What is the difference between a shift and a movement along the curve?
A movement along the curve happens when the good's own price changes; economists call it a change in quantity demanded or supplied. A shift happens when another factor changes, so the whole curve moves and you get a change in demand or supply.
What happens when supply and demand both shift?
If both increase, quantity definitely rises but the price change depends on which shift is bigger. If demand rises and supply falls, price definitely rises but quantity is uncertain. One variable is always clear; the other depends on sizes.