Principles of Macroeconomics / Unit 2 MAC 0117 worked example, 60 to 90 seconds
Which Curve Shifts, and Which Way
The idea
The hard step is the second one, deciding which curve moves. Ask whether the event changes what buyers want at every price, or what sellers offer at every price. If it changes buyers' willingness or ability, it is demand. If it changes the cost or ease of producing, it is supply. Then read the direction from the shift: supply right lowers the price and raises the quantity; supply left raises the price and lowers the quantity; demand right raises both; demand left lowers both.
In practice
Worked example: a pest destroys half a crop. Buyers' incomes, tastes and numbers are unchanged, so demand does not move. Producing has become harder, so supply shifts left. The price rises and the quantity falls. Buyers do end up buying less, but through a movement along their curve, not a shift of it.
Where people slip
The classic wrong answer reasons that less is available so buyers demand less, and shifts demand left as well. That would predict a falling price, which is the opposite of what a ruined harvest does. Buying less at a higher price is a movement along demand.
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