← Market equilibrium
Shifts and the new equilibrium (every paper)
Decide shift vs movement → shift the curve → state old Pe/Qe → new Pe/Qe with directions. Exam-style Incomes rise and airline travel is a normal good Show the effect on the market for air travel. Income ↑ + normal good → DEMAND shifts RIGHT (not a movement: own price did not change first). At the old price a shortage now exists → upward pressure on price. New equilibrium: Pe ↑ and Qe ↑. ✓ D→D₁ right; both price and quantity rise. Always name the determinant (income) and the good type (normal).| Event | Curve | Shift | Pe | Qe |
|---|---|---|---|---|
| Wages of producers rise | Supply | Left | ↑ | ↓ |
| Technology improves | Supply | Right | ↓ | ↑ |
| Price of a substitute rises | Demand | Right | ↑ | ↑ |
| Price of a complement rises | Demand | Left | ↓ | ↓ |
Double shifts (both curves) are the Excellence case: the effect on one variable becomes certain only if you reason both curves.
✕Shift vs movement — the #1 exam trap
A change in the good's OWN price is never a shift — it is a movement ALONG the existing curve, and the curve itself does not move. Only a change in something ELSE (income, tastes, the price of another good, costs, technology) shifts the curve. Confusing the two loses the mark on the diagram AND every written part that follows it. Exam-style A double shift: reasoning through both curves at once A drought raises the cost of feed for dairy farmers AND consumer incomes rise, with milk a normal good. Show the combined effect. SUPPLY: higher feed costs shift SUPPLY LEFT (less produced at every price). DEMAND: rising incomes with milk a normal good shift DEMAND RIGHT (more wanted at every price). PRICE: both shifts push price in the SAME direction (up), so the new price is CERTAINLY higher than before. QUANTITY: the two shifts push quantity in OPPOSITE directions — supply-left reduces it, demand-right increases it — so the net effect on quantity is UNCERTAIN without knowing the relative SIZE of each shift. ✓ Price is certain when both shifts agree on its direction; quantity is uncertain here because the two shifts disagree — always check both effects separately before concluding.A fast check before naming the new equilibrium
- Have I correctly identified whether the change is a SHIFT (a determinant changed) or a MOVEMENT (own price changed)?
- For a double shift, have I checked both curves separately before concluding on price AND quantity?