<< Chapter < Page Chapter >> Page >

The next Clear It Up feature focuses on the difference between shifts of supply or demand and movements along a curve.

What is the difference between shifts of demand or supply versus movements along a demand or supply curve?

One common mistake in applying the demand and supply framework is to confuse the shift of a demand or a supply curve with movement along a demand or supply curve. As an example, consider a problem that asks whether a drought will increase or decrease the equilibrium quantity and equilibrium price of wheat. Lee, a student in an introductory economics class, might reason:

“Well, it is clear that a drought reduces supply, so I will shift back the supply curve, as in the shift from the original supply curve S 0 to S 1 shown on the diagram (called Shift 1). So the equilibrium moves from E 0 to E 1 , the equilibrium quantity    is lower and the equilibrium price is higher. Then, a higher price makes farmers more likely to supply the good, so the supply curve shifts right, as shown by the shift from S 1 to S 2 , on the diagram (shown as Shift 2), so that the equilibrium now moves from E 1 to E 2 . The higher price, however, also reduces demand and so causes demand to shift back, like the shift from the original demand curve, D 0 to D 1 on the diagram (labeled Shift 3), and the equilibrium moves from E 2 to E 3 .”

Shifts of demand or supply versus movements along a demand or supply curve

The graph shows the difference between shifts of demand and supply, and movement of demand and supply.
A shift in one curve never causes a shift in the other curve. Rather, a shift in one curve causes a movement along the second curve.

At about this point, Lee suspects that this answer is headed down the wrong path. Think about what might be wrong with Lee’s logic, and then read the answer that follows.

Answer: Lee’s first step is correct: that is, a drought shifts back the supply curve of wheat and leads to a prediction of a lower equilibrium quantity and a higher equilibrium price. This corresponds to a movement along the original demand curve (D 0 ), from E 0 to E 1 . The rest of Lee’s argument is wrong, because it mixes up shifts in supply with quantity supplied, and shifts in demand with quantity demanded. A higher or lower price never shifts the supply curve, as suggested by the shift in supply from S 1 to S 2 . Instead, a price change leads to a movement along a given supply curve. Similarly, a higher or lower price never shifts a demand curve, as suggested in the shift from D 0 to D 1 . Instead, a price change leads to a movement along a given demand curve. Remember, a change in the price of a good never causes the demand or supply curve for that good to shift.

Think carefully about the timeline of events: What happens first, what happens next? What is cause, what is effect? If you keep the order right, you are more likely to get the analysis correct.

In the four-step analysis of how economic events affect equilibrium price and quantity, the movement from the old to the new equilibrium seems immediate. As a practical matter, however, prices and quantities often do not zoom straight to equilibrium. More realistically, when an economic event causes demand or supply to shift, prices and quantities set off in the general direction of equilibrium. Indeed, even as they are moving toward one new equilibrium, prices are often then pushed by another change in demand or supply toward another equilibrium.

Key concepts and summary

When using the supply and demand framework to think about how an event will affect the equilibrium price and quantity, proceed through four steps: (1) sketch a supply and demand diagram to think about what the market looked like before the event; (2) decide whether the event will affect supply or demand; (3) decide whether the effect on supply or demand is negative or positive, and draw the appropriate shifted supply or demand curve; (4) compare the new equilibrium price and quantity to the original ones.

Problems

Demand and supply in the market for cheddar cheese is illustrated in [link] . Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

  1. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.
  2. A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.

Price per Pound Qd Qs
$3.00 750 540
$3.20 700 600
$3.40 650 650
$3.60 620 700
$3.80 600 720
$4.00 590 730
Got questions? Get instant answers now!

Supply and demand for movie tickets in a city are shown in [link] . Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.

  1. Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by selling food and drink. As a result, demand for movie tickets falls by six units at every price.
  2. The city eliminates a tax that it had been placing on all local entertainment businesses. The result is that the quantity supplied of movies at any given price increases by 10%.

Price per Pound Qd Qs
$5.00 26 16
$6.00 24 18
$7.00 22 20
$8.00 21 21
$9.00 20 22
Got questions? Get instant answers now!

References

Pew Research Center. “Pew Research: Center for the People&the Press.” http://www.people-press.org/.

Questions & Answers

Do somebody tell me a best nano engineering book for beginners?
s. Reply
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
s.
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Harper
how to fabricate graphene ink ?
SUYASH Reply
for screen printed electrodes ?
SUYASH
What is lattice structure?
s. Reply
of graphene you mean?
Ebrahim
or in general
Ebrahim
in general
s.
Graphene has a hexagonal structure
tahir
On having this app for quite a bit time, Haven't realised there's a chat room in it.
Cied
what is biological synthesis of nanoparticles
Sanket Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
China
Cied
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
Porter
many many of nanotubes
Porter
what is the k.e before it land
Yasmin
what is the function of carbon nanotubes?
Cesar
I'm interested in nanotube
Uday
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
what is nano technology
Sravani Reply
what is system testing?
AMJAD
preparation of nanomaterial
Victor Reply
Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
Himanshu Reply
good afternoon madam
AMJAD
what is system testing
AMJAD
what is the application of nanotechnology?
Stotaw
In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
Azam
anybody can imagine what will be happen after 100 years from now in nano tech world
Prasenjit
after 100 year this will be not nanotechnology maybe this technology name will be change . maybe aftet 100 year . we work on electron lable practically about its properties and behaviour by the different instruments
Azam
name doesn't matter , whatever it will be change... I'm taking about effect on circumstances of the microscopic world
Prasenjit
how hard could it be to apply nanotechnology against viral infections such HIV or Ebola?
Damian
silver nanoparticles could handle the job?
Damian
not now but maybe in future only AgNP maybe any other nanomaterials
Azam
Hello
Uday
I'm interested in Nanotube
Uday
this technology will not going on for the long time , so I'm thinking about femtotechnology 10^-15
Prasenjit
can nanotechnology change the direction of the face of the world
Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
Ali Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
Good
Got questions? Join the online conversation and get instant answers!
QuizOver.com Reply

Get the best Algebra and trigonometry course in your pocket!





Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of macroeconomics for ap® courses' conversation and receive update notifications?

Ask