- Indeterminate effect
- An indeterminate effect is a change in price or quantity whose direction cannot be known without knowing how far each curve shifts.
- Determinate effect
- A determinate effect is a change in price or quantity whose direction is certain, because both shifts push it the same way.
One shift at a time
Can you name the four single shifts and what each does to the equilibrium?
Work out each shift on its own, holding everything else constant, then combine them.
An increase in demand, with supply unchanged, raises both the equilibrium price and the equilibrium quantity.
Can you think of an example?
Incomes rise and more people want restaurant meals at every price, so restaurants charge more and serve more meals.
A decrease in demand, with supply unchanged, lowers both the equilibrium price and the equilibrium quantity.
Can you think of an example?
Readers move from printed newspapers to news on their phones, so demand for print shifts left: a lower price and fewer copies sold.
An increase in supply, with demand unchanged, lowers the equilibrium price and raises the equilibrium quantity.
Can you think of an example?
Excellent weather for salmon fishing brings in bigger catches, so more salmon is sold at a lower price.
A decrease in supply, with demand unchanged, raises the equilibrium price and lowers the equilibrium quantity.
Can you think of an example?
A drought cuts the wheat harvest, so less wheat is sold and its price rises.