When Demand and Supply Both Shift: All Four Cases

Imagine that a school fair becomes much more popular just as several new lemonade stalls open. More people want lemonade, but more sellers are ready to provide it too.

Will a glass become more expensive?

You cannot tell from those two facts alone. You can, however, predict that the equilibrium number of glasses sold will increase under the usual demand and supply assumptions.

That is the part of simultaneous shifts that often feels uncomfortable: a good economics answer sometimes gives a definite conclusion for quantity and a conditional conclusion for price. The conditional part is not an incomplete answer. It is the correct use of the information available.

Let’s work through all four combinations, then use one small market to check the results with numbers.

The four cases at a glance

For a downward-sloping demand curve and an upward-sloping supply curve, with a valid intersection before and after the changes:

Demand	Supply	Price	Quantity
Increases	Increases	Uncertain	Rises
Decreases	Decreases	Uncertain	Falls
Increases	Decreases	Rises	Uncertain
Decreases	Increases	Falls	Uncertain

Here, uncertain means that the variable may rise, fall or remain unchanged, depending on the relative effects of the shifts. It does not mean that the market has no equilibrium.

These outcomes are covered in NCERT’s Market Equilibrium chapter, Table 5.1. The examples and calculations below are original practice illustrations.

This shortcut assumes the ordinary curve shapes stated above. A question involving perfectly elastic or perfectly inelastic curves needs its own diagram.

First separate a shift from a movement

A shift means that buyers or sellers change their planned quantity at the same price. If demand increases, buyers want more at each price. If supply decreases, sellers offer less at each price.

A change in the good’s own price causes movement along an existing curve. It does not, by itself, shift that curve. OpenStax explains this distinction in its lesson on shifts in demand and supply.

Take the lemonade example. A larger fair attracts extra customers, so demand can shift right. New stalls add selling capacity, so supply can shift right. Those are two separate reasons for two separate shifts.

Now change the story: the fair attracts extra customers, and existing sellers offer more lemonade because its price rises. That second statement describes a movement along supply. It does not establish a second shift.

If this distinction still catches you out, revise movement along a demand curve versus a shift before attempting the combined cases.

A simple way to reason through any case

Start with the effect of each change while temporarily keeping the other curve fixed. Then compare the two predictions for price separately from the two predictions for quantity.

OpenStax uses this approach in its analysis of changes in equilibrium. If the two effects agree, the direction is clear. If they oppose one another, their relative strength matters.

You can write four small reminders in the margin:

• Demand right: price up, quantity up.
• Demand left: price down, quantity down.
• Supply right: price down, quantity up.
• Supply left: price up, quantity down.

The following market lets us see what those reminders actually mean.

Our starting market: price Rs 20, quantity 80

Suppose a hypothetical market for reusable notebooks has these equations:

Qd = 120 - 2P

Qs = 40 + 2P

P is the price in rupees per notebook. Qd and Qs are notebooks demanded and supplied per day. We use the equations only over the relevant range where quantities are non-negative.

At equilibrium, Qd = Qs:

120 - 2P = 40 + 2P
80 = 4P
P = Rs 20

Substitute P = 20 into either equation:

Qd = 120 - 40 = 80
Qs = 40 + 40 = 80

So our starting point, E0, is 80 notebooks at Rs 20 each.

For each worked case below, return to this original market. The examples are separate alternatives, not a sequence of events.

Case 1: demand increases and supply increases

Suppose students become more enthusiastic about reusable notebooks while a cheaper production process encourages sellers to offer more.

Use these new equations:

Qd = 160 - 2P
Qs = 60 + 2P

At every unchanged price, demand is 40 notebooks greater and supply is 20 notebooks greater than before. Both curves shift right.

Solve the new equilibrium:

160 - 2P = 60 + 2P
100 = 4P
P = Rs 25

Quantity = 160 - 2(25) = 110 notebooks. Supply gives the same answer: 60 + 2(25) = 110.

Both price and quantity rise in this particular example. But the price increase is not a universal rule for this case.

Keep the new demand equation at Qd = 160 - 2P and try three possible supply increases:

New supply equation	New price	New quantity
Qs = 60 + 2P	Rs 25	110
Qs = 80 + 2P	Rs 20	120
Qs = 100 + 2P	Rs 15	130

Every quantity exceeds the original 80. Price can be above, equal to or below the original Rs 20.

For the school fair, this means extra customers and extra stalls can produce more sales without telling us whether lemonade becomes dearer or cheaper.

Case 2: demand decreases and supply decreases

Suppose interest in reusable notebooks weakens while a shortage of suitable paper reduces what producers can offer.

Let the new equations be:

Qd = 100 - 2P
Qs = 0 + 2P

Demand has shifted left by 20 notebooks at each price. Supply has shifted left by 40.

100 - 2P = 2P
100 = 4P
P = Rs 25

Quantity = 100 - 2(25) = 50 notebooks.

Here the price rises even though demand falls. The reduction in supply is strong enough to outweigh the downward pressure on price from lower demand.

Try two other combinations:

• Qd = 100 - 2P and Qs = 20 + 2P give P = Rs 20, Q = 60.
• Qd = 80 - 2P and Qs = 20 + 2P give P = Rs 15, Q = 50.

Across all three versions, quantity falls below 80. Price takes all three possible directions relative to Rs 20.

A useful written answer would therefore say: “The equilibrium quantity decreases. The equilibrium price depends on the relative effects of the decreases in demand and supply.”

Notice how much stronger that is than simply writing, “Both decrease.”

Case 3: demand increases and supply decreases

Now suppose reusable notebooks become more fashionable while a paper shortage makes production harder.

Take:

Qd = 160 - 2P
Qs = 20 + 2P

Demand shifts right by 40 notebooks and supply shifts left by 20 at every given price.

160 - 2P = 20 + 2P
140 = 4P
P = Rs 35

Quantity = 160 - 2(35) = 90 notebooks.

Price rises and quantity rises in this version. To see why quantity is conditional, consider two alternatives:

• Qd = 140 - 2P and Qs = 20 + 2P give P = Rs 30, Q = 80.
• Qd = 140 - 2P and Qs = 0 + 2P give P = Rs 35, Q = 70.

Price exceeds Rs 20 every time. Quantity can exceed, equal or fall below 80.

In a graph, the new equilibrium must lie above E0. It need not lie to its right.

Case 4: demand decreases and supply increases

Finally, suppose students lose interest in reusable notebooks while a production improvement allows sellers to offer more at each price.

Use:

Qd = 100 - 2P
Qs = 80 + 2P

100 - 2P = 80 + 2P
20 = 4P
P = Rs 5

Quantity = 100 - 2(5) = 90 notebooks.

Price falls and quantity rises in this version. Two alternatives complete the picture:

• Qd = 100 - 2P and Qs = 60 + 2P give P = Rs 10, Q = 80.
• Qd = 80 - 2P and Qs = 60 + 2P give P = Rs 5, Q = 70.

The price is below Rs 20 throughout. The quantity outcome varies.

This is why a falling price does not automatically prove that fewer units are being sold. With both curves changing, price alone cannot tell the whole story.

What does a “larger shift” actually mean?

Students are often told that the larger shift wins. That phrase needs care: larger measured in what way?

In our notebook examples, both equations have slopes of equal magnitude, and each shift is a fixed horizontal change in quantity at every price. Under those particular conditions, comparing the numerical shifts is straightforward.

With different slopes, equal horizontal shifts in opposite directions need not leave quantity unchanged.

Here is an original counterexample:

Old demand: Qd = 120 - 2P
Old supply: Qs = 30 + P

Equilibrium gives 120 - 2P = 30 + P, so P = Rs 30 and Q = 60.

Now increase demand by 15 units and decrease supply by 15 units at every price:

New demand: Qd = 135 - 2P
New supply: Qs = 15 + P

135 - 2P = 15 + P
120 = 3P
P = Rs 40 and Q = 55

The horizontal shifts are equal and opposite, but equilibrium quantity falls from 60 to 55. The different slopes matter.

For questions with equations, solve the equations. For questions with diagrams, inspect the actual intersections. For a purely descriptive question, state the certain result and explain that the other depends on the relative effects.

An optional algebra check

If you enjoy seeing the pattern, write demand and supply as:

Qd = a - bP
Qs = c + dP, where b and d are positive.

Equating them gives:

P = (a - c) / (b + d)

Substitution gives:

Q = (ad + bc) / (b + d)

Let A be the change in the demand intercept and C the change in the supply intercept, while b and d stay fixed. A or C may be negative for a leftward shift.

Then:

Change in P = (A - C) / (b + d)

Change in Q = (dA + bC) / (b + d)

If A and C are both positive, the quantity change is positive. If A is positive and C is negative, the price change is positive. The other two cases follow by reversing the signs.

In the unequal-slope example, b = 2, d = 1, A = 15 and C = -15. The quantity change is [15 - 30] / 3 = -5, exactly matching the fall from 60 to 55.

You do not need this formula for a standard descriptive answer. It simply explains why careless claims about equal shifts can fail.

How to draw a diagram that matches your answer

Use price on the vertical axis and quantity on the horizontal axis. Mark downward-sloping D0 and upward-sloping S0, their intersection E0, and the original values P0 and Q0.

Next, draw the two new curves, D1 and S1. Label each clearly. The final equilibrium is D1 intersecting S1, not a crossing between one old curve and one new curve.

For a reliable drawing exercise, plot our first worked example:

Curve	Point at P = 10	Point at P = 30
D0	Q = 100	Q = 60
S0	Q = 60	Q = 100
D1	Q = 140	Q = 100
S1	Q = 80	Q = 120

Remember that each plotted coordinate is (Q, P). Thus, D0 passes through (100, 10) and (60, 30).

The old intersection should be (80, 20), and the new one should be (110, 25). Drop guide lines from each intersection to both axes. If your drawing gives a different result, check your coordinates before changing your conclusion.

To show all price possibilities for two rightward shifts, use three separate diagrams based on the three rows in the Case 1 table. Keep D1 fixed and change the new supply curve in each panel. One drawing represents one possible outcome; it cannot establish all three outcomes by itself.

Common mistakes worth catching before you finish

Giving two confident directions when only one is known. If a question says only that demand and supply increase, “price rises and quantity rises” assumes extra information. Retain the quantity conclusion and make price conditional.

Calling an unchanged price a cancellation of everything. In Case 1, equal horizontal rightward shifts leave price at Rs 20 but raise quantity to 120. The market has changed substantially.

Using percentages without checking the basis. “Demand rises by 10% and supply rises by 10%” requires knowing what those percentages describe. A percentage of yesterday’s sales is not automatically a shift of an entire schedule.

Reading a shortage as the final quantity. At the old price in Case 1, new demand is 120 and new supply is 100, giving a shortage of 20. The new equilibrium quantity is 110, not 20, 100 or 120.

Forgetting the unit and period. Write “110 notebooks per day at Rs 25 per notebook”, rather than leaving two unexplained numbers in your answer.

Try these six questions

Attempt the direction questions without looking at the first table. For calculations, always substitute your price into both equations.

1. A town’s demand for umbrellas increases while transport disruption reduces umbrella supply. What happens to equilibrium price and quantity?
2. Demand for a fruit decreases while a good harvest increases supply. Which outcome is certain?
3. Both demand and supply decrease. A student says price must fall. Correct the statement.
4. Originally, Qd = 120 - 2P and Qs = 40 + 2P. They change to Qd = 150 - 2P and Qs = 70 + 2P. Find the old and new equilibria.
5. In that same original market, demand becomes Qd = 140 - 2P and supply becomes Qs = 10 + 2P. Find the new equilibrium and compare it with the old one.
6. Can equal horizontal shifts in opposite directions leave quantity changed when demand and supply have different slopes?

Answers and working

1. Price rises. Quantity may rise, fall or stay unchanged because the two shifts have opposing effects on quantity.

2. Price falls. The quantity outcome depends on the relative effects of the two changes.

3. Quantity must fall under the usual assumptions. Price may rise, fall or remain unchanged.

4. The old equilibrium is P = Rs 20 and Q = 80. For the new one, 150 - 2P = 70 + 2P gives 4P = 80, so P = Rs 20. Q = 150 - 40 = 110. The price stays the same and quantity rises by 30.

5. Set 140 - 2P = 10 + 2P. Then 4P = 130, so P = Rs 32.50. Qd = 140 - 65 = 75 and Qs = 10 + 65 = 75. Price rises by Rs 12.50 and quantity falls by 5 notebooks.

6. Yes. In the unequal-slope example above, demand rises by 15 and supply falls by 15 at each price, yet equilibrium quantity falls by 5. Equal shift sizes alone do not settle the quantity result.

Frequently asked questions

What happens when demand and supply both increase?

Equilibrium quantity increases with ordinary downward-sloping demand and upward-sloping supply. Price can rise, fall or remain unchanged, depending on the relative effects of the shifts.

What happens when demand and supply both decrease?

Equilibrium quantity decreases. The direction of the price change cannot be decided without more information about the shifts.

What happens when demand increases and supply decreases?

Equilibrium price rises. Quantity is conditional because higher demand pushes it up while lower supply pushes it down.

What happens when demand decreases and supply increases?

Equilibrium price falls. Quantity may increase, decrease or remain unchanged.

Does an uncertain outcome mean there is no equilibrium?

No. It means the information given does not identify the direction of one change. Specific demand and supply equations may still produce a precise new equilibrium.

If both curves move right, must price remain the same?

No. In our notebook examples, price rises to Rs 25, stays at Rs 20 or falls to Rs 15 depending on the supply increase. Quantity rises in all three.

Does a rise in price shift the supply curve right?

A change in the good’s own price causes movement along the existing supply curve. A separate change, such as a production improvement, is needed to explain a shift.

Which intersection gives the new equilibrium?

Use the intersection of the new demand curve and the new supply curve. Crossings that include an old curve do not give the final equilibrium after both shifts.

Can price rise while demand falls?

Yes. If supply also falls sufficiently, the equilibrium price can rise. In Case 2, the price rises from Rs 20 to Rs 25 while quantity falls from 80 to 50.

What is the quickest way to check my answer?

Check the direction rule first: same-direction shifts settle quantity, opposite-direction shifts settle price. Then, if equations are given, solve Qd = Qs and verify the resulting quantity in both equations.