Principles of Microeconomics / Unit 2 MIC 0119 worked example, 60 to 90 seconds
When Both Curves Shift
The idea
When demand and supply shift at once, work each shift separately and combine the answers. Wherever the two shifts push a variable the same way, that variable's direction is certain. Wherever they push it opposite ways, the direction depends on which shift is larger, and without the sizes the answer is indeterminate. Demand right and supply right: quantity rises, price indeterminate. Demand right and supply left: price rises, quantity indeterminate. The mirror cases reverse the signs.
In practice
Worked example: in the market for streaming rentals, cinema tickets get dearer, a substitute, so demand shifts right; at the same time wages for the service's staff rise, a cost, so supply shifts left. Each shift alone raises the price, so the price rises for certain. Demand right raises quantity while supply left lowers it, so the quantity could go either way. If the demand shift is the larger, quantity rises; if the supply shift is, it falls.
Where people slip
Indeterminate means undetermined by the information given, not undetermined in fact. With the sizes of the shifts the answer is fixed. The error is to pick a direction anyway; the correct answer to an exam question in this case is that the variable cannot be determined.
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