Principles of Macroeconomics / Unit 2 MAC 0118 worked example, 60 to 90 seconds
When Both Curves Shift
The idea
When demand and supply both shift, one of the two answers is determinate and the other is not. Work each shift separately and note what it does to price and to quantity. Where the two shifts push the same variable the same way, that variable's direction is certain. Where they push it in opposite directions, the outcome depends on which shift is larger, and the honest answer is that it cannot be determined from the information given.
In practice
Worked example: buyers and sellers both come to expect a higher price next month. Demand rises now, which raises price and raises quantity. Supply falls now, which raises price and lowers quantity. Both push the price up, so the price rises for certain. They push quantity opposite ways, so the change in quantity is indeterminate.
Where people slip
Indeterminate is a real answer, not a failure to finish. On an exam, a question in which both curves move is usually testing whether you will claim certainty about the variable that has none.
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