Changes in equilibrium explain how markets respond when demand or supply conditions change. You should be able to shift curves correctly, identify the new equilibrium price and equilibrium quantity, and recognise when outcomes are ambiguous.

Core idea: a “new” equilibrium after a shift

A shift changes the quantity traded at every price, so the intersection moves to a different point. In contrast, a change in price alone does not shift curves; it changes the quantity demanded or supplied along an existing curve.

What shifts (and what does not)

• Demand shifts when a determinant of demand changes (not the good’s own price).

• Supply shifts when a determinant of supply changes (not the good’s own price).

• A new equilibrium is found where the new curves intersect, holding other factors constant (ceteris paribus).

Demand shifts: effect on equilibrium price and quantity

A demand shift is a rightward or leftward movement of the entire demand curve.

Four separate panels illustrate the standard comparative-statics results for one-curve shifts: demand shifting right/left and supply shifting right/left. Each panel labels the original and new equilibrium points so you can directly read the direction of change in equilibrium price and equilibrium quantity. This is the clean “one shift at a time” baseline used for most AP-style questions. Source

Increase in demand (shift right)

• Equilibrium price: rises

• Equilibrium quantity: rises

• Intuition: buyers are willing and able to purchase more at each price, bidding the market to a higher price while increasing sales.

Decrease in demand (shift left)

• Equilibrium price: falls

• Equilibrium quantity: falls

• Intuition: reduced willingness/ability to buy lowers the price needed to clear the market and reduces output sold.

Supply shifts: effect on equilibrium price and quantity

A supply shift is a rightward or leftward movement of the entire supply curve.

Increase in supply (shift right)

• Equilibrium price: falls

• Equilibrium quantity: rises

• Intuition: firms can produce more at each price, putting downward pressure on price while expanding sales.

Decrease in supply (shift left)

• Equilibrium price: rises

• Equilibrium quantity: falls

• Intuition: higher costs or reduced capacity means less is offered at each price, raising price and lowering quantity traded.

When both demand and supply shift

If both curves shift, the direction of change can be partly predictable and partly uncertain.

The graph overlays a leftward shift in demand ($D_0\to D_1$) and a leftward shift in supply ($S_0\to S_1$), producing a new equilibrium with a clearly lower quantity but an ambiguous price outcome. Multiple candidate equilibria (e.g., $E_1$, $E_2$, $E_3$) illustrate how the final price depends on the relative size of the two shifts. This is the visual logic behind writing “depends on relative magnitude of the shifts” when no specific graph is provided. Source

One variable is certain; one may be ambiguous

• If demand increases and supply increases:

  • Equilibrium quantity: increases (certain)

  • Equilibrium price: ambiguous (depends on relative shift sizes)

• If demand decreases and supply decreases:

  • Equilibrium quantity: decreases (certain)

  • Equilibrium price: ambiguous

• If demand increases and supply decreases:

  • Equilibrium price: increases (certain)

  • Equilibrium quantity: ambiguous

• If demand decreases and supply increases:

  • Equilibrium price: decreases (certain)

  • Equilibrium quantity: ambiguous

How to handle ambiguity on graphs

• Use a clear right/left shift and compare the old intersection to the new one.

• If asked without a graph, state:

  • which curve(s) shift,

  • the certain change (P or Q),

  • and that the other variable “depends on the relative magnitude of the shifts.”

A reliable procedure for “changes in equilibrium” questions

• Identify whether the change affects demand, supply, or both (and the direction).

• Shift the correct curve(s); do not move along curves.

• Locate the new intersection.

• State changes in equilibrium price (P*) and equilibrium quantity (Q*).

• If both curves shift, explicitly note any ambiguous result and why.