Changes in Supply and Demand - 8 cases of change

Remember:the Demand curve can only shift if ONE of its Determinants changes.The Supply curve can only shift if ONE of its Determinants changes.

Cases 1-4 are Short Run changes.They are "simple" in that only curve moves while the other is held constant.There is only one answer for each case.

Demand shifts, holding Supply constant

1.When Demand increases the D curve shifts outward/rightward.P and Q increase.

2.When Demand decreases, the D curve moves inward/leftward.P and Q decrease.

Summary for cases 1-2:Change in D directly related to change in P and change in Q

Supply shifts, holding Demand constant.

3.When Supply increases, the S curve shifts outward/rightward.P decreases, Q increases.

4.When Supply decreases, the S curve shifts inward/leftward.P increases, Q decreases.

Summary for cases 3-4 :Change in S directly related to change in Q, indirectly related to change in P.

Cases 5-8 are Long Run changes. They are complex in that both curves are moving and then generate three different answers. For these cases, you will have to refer to the appendix to chapter 3 as well.

5.D increases, S increases.

When D increases, P increases and Q increases

When S increases, P decreases and Q increases

Conflict:over the Price,.P is indeterminant since it can increase, decrease or remain the same depending upon which shift is stronger.

Solutions:P increases, Q increases, if change in D > change in S

P constant, Q increases, if change in D =change in S

P decreases, Q increases, if change in D < change in S

6.D decreases, S decreases.

When D decreases, P decreases and Q decreases

When S decreases, P increases and Q decreases

Conflict:over the Price,.P is indeterminant since it can increase, decrease or remain the same (constant) depending upon which shift is stronger.

Solutions:P decreases, Q decreases, if change in D > change in S

P constant, Q decreases, if change in D =change in S

P increases, Q decreases, if change in D < change in S

Summary for cases 5 and 6:When D and S shifts are the direct (either increasing or decreasing together), then P is indeterminant, Q is directly related to the shifts in D and S.

7.D increase, S decreases

When D increases, P increases and Q increases

When S decreases, P increases and Q decreases

Conflict:over the Q.Q is indeterminant since it can increase, decrease or remain the same depending upon which shift is stronger.

Solutions:P increases, Q increases, if change in D > change in S

P increases, Q constant, if change in D =change in S

P increases, Q decreases, if change in D < change in S

8.D decreases, S increases

When D decreases, P decreases and Q decreases

When S increases, P decreases and Q increases

Conflict:over the Q.Q is indeterminant since it can increase, decrease or remain the same depending upon which shift is stronger.

Solutions:P decreases, Q decreases, if change in D > change in S

P decreases, Q constant, if change in D =change in S

P decreases, Q increases, if change in D < change in S

Summary for cases 7-8:When shifts in D and S are inverse (one increases while the other decreases), then Q is indeterminant, and change in P is directly related to change in D (or, indirectly related to change in S)

Questions:

1.A) Describe equilibrium, surplus and shortage.For each situation, explain what the relationship is between Qd and Qs, and between Supply and Demand curves.

1.B) What is causing these relationships to exist?