Question

How are the equilibrium price and quantity affected when demand and supply curves shift in the opposite direction?

Answer 1

When demand of a commodity increases and supply decreases ( i.e., when demand curve shifts to the right and supply curve shifts to the left), the equilibrium price will always increase but the equilibrium quantity may or may not be affected. There may be three situations:
(i) When the increase in demand is more than the decrease in supply, both equilibrium price and quantity will rise. See Fig. (a).
(ii) When increase in demand is equal to decrease in supply, then the equilibrium price will rise but the quantity remains the same. See Fig. (b).
(iii) When increase in demand is less than the decrease in supply, then the equilibrium price will rise but quantity will fall. See Fig. (c).



When the demand of a commodity decreases and supply increases ( i.e., when demand curve shifts to the left and supply curve shifts to the right), the equilibrium price will fall but the equilibrium quantity may or may not be affected. There may be three situations:
(i) When the decrease in demand is more than the increase in supply, both equilibrium price and quantity will fall. See Fig. (a).
(ii) When the decrease in demand is equal to the increase in supply, then the equilibrium price will fall but the quantity remains the same. See Fig. (b).
(iii) When the decrease in demand is less than the increase in supply, then the equilibrium price will fall but the quantity will rise. See Fig. (c).